Question

# Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...

 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of \$2.94 million. 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 \$2,160,000 in annual sales, with costs of \$855,000. The project requires an initial investment in net working capital of \$380,000, and the fixed asset will have a market value of \$250,000 at the end of the project. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.)

 Years Cash Flow Year 0 \$ Year 1 \$ Year 2 \$ Year 3 \$
 If the required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
 NPV? \$

 Annual cash inflows Annual sales 2160000 Less: Cost 855000 Less: Annual dep (2940000/3) 980000 Net income before tax 325000 Less: tax @ 34% 110500 After tax income 214500 Add: Dep 980000 Annual cashflows 1194500 Year0 YEar1 YEar2 YEar3 Initial Investment -2940000 WC investment -380000 Cash flows 1194500 1194500 1194500 Salvage after tax (250000*66%) 165000 WC release 380000 Cash flows -3320000 1194500 1194500 1739500 PVF at 10% 1 0.909091 0.8264463 0.751315 Present value of CF -3320000 1085909 987190.08 1306912 NPV 60011

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