Question

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. The project is estimated to generate $1,805,000 in annual sales, with costs of $715,000. The project requires an initial investment in net working capital of $440,000, and the fixed asset will have a market value of $465,000 at the end of the project.

 a. If the tax rate is 24 percent, what is the project's Year O net cash flow? Year 12 Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)

 b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 

Answer 1

Answer 2

1)

fix =-K51/3 D52 B Н Depreciati Working After-tax Tax@24 Net Depreciati PVIF@ 50 Year Investment Net cash flow 11% $(440,000) $(2,380,000) $ (2,820,000) 1.000 $ $ 1,018,800 0.901 $ 0.812 $ 0.731 $ capital Present value Revenue Costs PBT income OCF on on (2,820,000.00) 51 1 $1,805,000 $715,000 | $793,333 | $ 296,667 $71,200 $225,467 $793,333 $ 1,018,800 $ 2 $1,805,000 $715,000 $793,333 |$ 296,667 $71,200 $225,467 $793,333 $ 1,018,800$ 917,837.84 52 $ 1,018,800 3 $1,805,000 $715,000 $793,333 $ 296,667 $71,200 $225,467 $793,333 $ 1,018,800 $ 440,000 $ 353,400 $ 1,812,200 53 826,880.93 54 1,325,065.02 55 $249,783.79 Net present value 56 $ 2,380,000 $ 2,380,000 62 Asset cost Less: Depreciation charged WDV at the time of sale Sale value of machine Profit/(Loss) on sale 63 64 $ 465,000 $ 465,000 $ 111,600 $ 353,400 65 66 Less: Tax @ 24% After tax cash salvage value 67 68 69 -$2,820,000 $1,018,800 $1,018,800 $1,812,200 $249,783.79 70 Net cash flow Year O 71 Net cash flow Year 1 72 Net cash flow Year 2 73 Net cash flow Year 3 74 NPV

*Please rate thumbs up

Answer 3