Question

Check my work mode : This shows what is correct or incorrect for the work you have comp Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.38 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 $1,760,000 in annual sales, with costs of $670,000. The tax rate is 25 percent and the required return on the project is 11 percent. What is the project's NPV? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, and round your answer to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. NPV 182 406 69 $ Prev Next>

Answer 1

Solution:

Computation of annual cash inflows
Particulars	Amount
Sales	$1,760,000.00
Costs	$670,000.00
Depreciation	$793,333.33
Income before taxes	$296,666.67
Income tax expense (25%)	$74,166.67
Net income	$222,500.00
Add: Depreciation	$793,333.33
Annual cash inflows	$1,015,833.33

Computation of NPV
Particulars	Period	Amount	PV factor at 11%	Present Value
Cash outflows:
Initial investment	0	$2,380,000.00	1	$2,380,000.00
Present Value of Cash outflows (A)				$2,380,000.00
Cash Inflows
Annual cash inflows	1-3	$1,015,833	2.44371	$2,482,406.87
Present Value of Cash Inflows (B)				$2,482,406.87
Net Present Value (NPV) (B-A)				$102,406.87