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 \$2.41 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. 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 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.)

Year 0 cash flow=

Year 1 Cash Flow=

Year 2 Cash flow =

Year 3 Cash Flow=

NPV=

 Year 0 1 2 3 cost of project -2410000 Investment in working capital -380000 sales 1775000 1775000 1775000 lesscost 672000 672000 672000 less depreciation 2410000 0 0 operating profit -1307000 1103000 1103000 less tax -23% -300610 253690 253690 after tax profit -1006390 849310 849310 add depreciation 2410000 0 0 after tax sale proceeds of machine 288750 recovery of working capital 380000 1- net operating cash flow -2790000 1403610 849310 1518060 present value of net operating cash flow = net operating cash flow/(1+r)^n r = 9% -2790000 1287715.6 714847.235 1172220.85 2- Net present value = sum of present value of operating cash flow 384783.69

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