Question

Quad Enterprises is considering a new three-year expans investment of $2.38 million. The fixed asset will be depre life. The project is estimated to generate $1,760,000 in project that requires an initial fixed asset straight-line to zero over its three-year tax annual sales, with costs of $670,000. The project atient in net working capital of $350,000, and the fixed asset will have a market a. If the tax rate is 25 percent, what is the pr oject's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not 1,234,567. A negative answer should be indicated by a minus sign.) rs, not millions of dollars, e.g., b. If th e required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 3 2.16.) a. Year 0 cash flow ear 1 cash flow Year 2 cash flow Year 3 cash flow b. INPV References

Answer 1

Calculation of NPV of the project
Year	0	1	2	3	NPV
Initial Fixed asset investment	-$2,380,000.00
Initial Investment in net working capital	-$350,000.00
Operating Cash flow		$1,015,833.33	$1,015,833.33	$1,015,833.33
After tax market value of project				$247,500.00
Recovery of net working capital				$350,000.00
Net Cash Flow	-$2,730,000.00	$1,015,833.33	$1,015,833.33	$1,613,333.33
x Discount Factor @ 10%	1	0.909090909	0.826446281	0.751314801
Present Value	-$2,730,000.00	$923,484.85	$839,531.68	$1,212,121.21	$245,137.74
NPV of the project =	$245,137.74
Answer a
Year 0 Cash flow	-$2,730,000.00
Year 1 Cash flow	$1,015,833.33
Year 2 Cash flow	$1,015,833.33
Year 3 Cash flow	$1,613,333.33
Answer b
NPV	$245,137.74
Working
Calculation of operating cash flow per year
Sales	$1,760,000.00
Less : Costs	$670,000.00
Less : Depreciation [$23,80,000/3 years]	$793,333.33
Profit before taxes	$296,666.67
Less : Taxes @ 25%	$74,166.67
Add: Depreciation	$793,333.33
Operating Cash flow per year	$1,015,833.33