H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,220,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,190,000 in annual sales, with costs of $1,180,000. Assume the tax rate is 30 percent and the required return on the project is 13 percent. What is the project's NPV? (A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e. g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) Net present value

Net present value = - $26,489.24 to 2 decimal places

Explanation:

In this question, we are tasked with calculating the net present value of the project.

We proceed as follows;

The following parameters are identified from the question;

Initial fixed asset investment = $2,220,000

Annual depreciation = Initial fixed asset investment/years of tax life = 2,220,000 / 3 = $740,000

Operating cash flow = (sales - costs - depreciation) (1 - tax rate) + depreciation

Operating cash flow = (2,190,000 - 1,180,000 - 740,000) (1 - 0.3) + 740,000 = $929,000

Net present value = present value of cash outflows - present value of cash inflows

Net present value = - 2,220,000 + [929,000 / (1 + 0.13) ^1] + [929,000 / (1 + 0.13) ^2 ] + [929,000 / (1 + 0.13) ^3 ]}

= - 2,220,000 + (822,123.894 + 727,543.269 + 643,843.601) =

-$26,489.236

Which is - $26,489.24 to 2 decimal places