Question

Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales. The tax rate is 21 percent. What is the incremental cash flow in year 1?"

"$35,000"

"$86,664"

"$60,000"

"$61,664"

"$67,999"

Answer #1

Explorer, Inc. is considering a new 4-year project that requires
an initial fixed asset (equipment) investment of $200,000. The
fixed asset is three-year MACRS property for tax purposes. In four
years, the equipment will be worth about half of what we paid for
it. The project is estimated to generate $500,000 in annual sales,
with costs of $400,000. The firm has to invest $100,000 in net
working capital at the start. After that, net working capital
requirements will be 25...

"Explorer, Inc. is considering a new 4-year project that
requires an initial fixed asset (equipment) investment of $200,000.
The fixed asset is three-year MACRS property for tax purposes. In
four years, the equipment will be worth about half of what we paid
for it. The project is estimated to generate $500,000 in annual
sales, with costs of $400,000. The firm has to invest $100,000 in
net working capital at the start. After that, net working capital
requirements will be 25...

Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.41
million. The fixed asset falls into the three-year MACRS class
(MACRS schedule). The project is estimated to generate $1,775,000
in annual sales, with costs of $672,000. The project requires an
initial investment in net working capital of $380,000, and the
fixed asset will have a market value of $375,000 at the end of the
project. a. If the tax rate is 23...

Summer Tyme, Inc., is considering a new 3-year expansion project
that requires an initial fixed asset investment of $2.4 million.
The fixed asset falls into the 3-year MACRS class (MACRS Table) and
will have a market value of $189,000 after 3 years. The project
requires an initial investment in net working capital of $270,000.
The project is estimated to generate $2,160,000 in annual sales,
with costs of $864,000. The tax rate is 35 percent and the required
return on the...

Quad Enterprises is considering a new 3-year expansion project
that requires an initial fixed asset investment of $3.5 million.
The fixed asset falls into the 3-year MACRS class (MACRS Table) and
will have a market value of $268,800 after 3 years. The project
requires an initial investment in net working capital of $384,000.
The project is estimated to generate $3,072,000 in annual sales,
with costs of $1,228,800. The tax rate is 22 percent and the
required return on the project...

Quad Enterprises is considering a new 3-year expansion project
that requires an initial fixed asset investment of $2.5 million.
The fixed asset falls into the 3-year MACRS class (MACRS Table) and
will have a market value of $197,400 after 3 years. The project
requires an initial investment in net working capital of $282,000.
The project is estimated to generate $2,256,000 in annual sales,
with costs of $902,400. The tax rate is 21 percent and the required
return on the project...

Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.1
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 $2,150,000 in
annual sales, with costs of $1,140,000.The project requires an
initial investment in net working capital of $150,000, and the
fixed asset will have a market value of $175,000 at the end of...

Blue Ribbon, Inc., is considering a new two-year expansion
project that requires an initial fixed asset investment of $3
million. The fixed asset actually falls into the three-year MARCRS
class (as shown in the Table below). Suppose that at the end of the
project, the fixed asset will have a market value of $2 million.
The project is estimated to generate $4 million in annual sales,
with costs of $2 million. The project also requires an initial
investment in net...

Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $3
million. The fixed asset will be depreciated straight-line to zero
over its three-year tax life. The project is estimated to generate
$2,180,000 in annual sales, with costs of $875,000. The project
requires an initial investment in net working capital of $400,000,
and the fixed asset will have a market value of $260,000 at the end
of the project. If the tax rate...

XZ Inc. is considering a three-year project. The initial
investment on the fixed asset will be $900,000. Fixed asset will be
depreciated using straight-line method to zero over the life of the
project. The net working capital investment will be $250,000. The
project is estimated to generate $500,000 in annual sales, with
cost of $150,000. Assume the tax rate is 34% and required return is
8%, what is the NPV of this project?

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