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 \$2.29 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate \$1,790,000 in annual sales, with costs of \$684,000. The project requires an initial investment in net working capital of \$410,000, and the fixed asset will have a market value of \$420,000 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? (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 12 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: _______

 Annual Net Income: Annual sales 1790000 Less: Annual cost 684000 Before tax Income 1106000 Less: tax @ 21% 232260 After tax income 873740 Cashflows: YEar0 Year1 YEar2 Year3 Initial investment -2290000 Investment of WC -410000 After tax income 873740 873740 873740 Tax shield on dep 480900 (2290000*21%) Release in WC 410000 After tax salvage value 331800 (420000-21%) Cash flows -2700000 1354640 873740 1615540 NPV YEar0 Year1 YEar2 Year3 Cashflows -2700000 1354640 873740 1615540 PVF at 12% 1 0.892857 0.797194 0.71178 Present value -2700000 1209500 696540.2 1149909 NPV 355950

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