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 \$2.37 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate \$1,765,000 in annual sales, with costs of \$675,000. The project requires an initial investment in net working capital of \$360,000, and the fixed asset will have a market value of \$345,000 at the end of the project.

 a. If the tax rate is 21 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Homework Answers

Answer #1
 Year 0 1 2 3 Investment (2,370,000.00) Investment in Working Capital (360,000.00) Annual Sales 1,765,000.00 1,765,000.00 1,765,000.00 Costs 675,000.00 675,000.00 675,000.00 Depreciation 790,000.00 790,000.00 790,000.00 Profit before tax 300,000.00 300,000.00 300,000.00 Less: Tax 63,000.00 63,000.00 63,000.00 Net Income 237,000.00 237,000.00 237,000.00 Add: Depreciation 790,000.00 790,000.00 790,000.00 Operating Cash flow 1,027,000.00 1,027,000.00 1,027,000.00 Recovery of Working capital 360,000.00 After tax salvage value 272,550.00 Cash flows (2,730,000.00) 1,027,000.00 1,027,000.00 1,659,550.00 PVF 1.00000 0.90090 0.81162 0.73119 PV of cash flows (2,730,000.00) 925,225.23 833,536.24 1,213,448.66 NPV 242,210.12
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