Air Taxi, Inc. is considering a new 3-year expansion project that requires an initial fixed asset investment of $1,500,000 million dollars. The asset will be depreciated over a 3 year tax life and have no salvage value. The project is estimated to have annual cash flows of $1,210,000 with a cost of $475,000. The tax rate is 35% percent and the required rate of return is 11% percent.
What is the project NPV?
Asset investment $1,500,000
Estimated annual sales $1,210,000
Costs $ 475,000
Tax rate 35%
*Depreciation straight-line to zero over tax life 3
Required return 11%