Finance

|1. Wheel Industries is considering a three year expansion project. |

|The project requires an initial investment of $1.5 million. The project will use straight line depreciation |

|method. The project has no salvage value. It is estimated that the project will generate additional revenues of |

|$1.2 million and has costs of $600,000. |

|The tax rate is 35%. Calculate the cash flows for the project. If the discount rate is 6% calculate the NPV of |

|the project. |

|Depreciation = Cost of the asset – salvage value |

|Life of the asset |

|= 1,500,000/ 3 |

|= 500,000 |

|Calculation of cash flows: |

|Revenue – 1,200,000 |

|Less Cost – 600,000 |

|Less Depreciation – 500,000 |

|Profit - 100,000 |

|Less taxes (35%) 35,000 |

|Profit after taxes 65,000 |

|Add...