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HW Ch 10 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment o
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Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV (2,670,000) 1,022,533 1,022,533 1,564,833 225,304.

Working:

Year 2 Year 3 Calculation of cash flows Particulars Year 0 Year 1 Upfront Investment (2,350,000) Investment in net working ca

Calculation of Saving in tax due to depreciation 2,350,000 Cost of the asset Useful life (in years) Depreciation per year Tax

Cash flow after tax Sales 1,745,000.00 Costs 655,000.00 Cash flow from operations 1,090,000.00 Tax @ 22% 239,800.00 Cash flow

After tax cash flow on sale of asset Sale price 285,000 Tax @ 22% 62,700 Cash flow after tax 222,300

Discount Factor Discounted cash Year Cash flow @ 11% flow a. Year 0 cash flow (2,670,000) (2,670,000) Year 1 cash flow 1,022,

Discount Factor = 7 (1 + i)

Where,

i = rate of return or discounting

n = number of periods

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