Question

Q2

Problem 10-10 Calculating Project NPV [LO1] Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.27 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 $1,800,000 in annual sales, with costs of $710,000. The tax rate is 23 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.) NPV

Answer 1

Solution :

The NPV of the project = $ 206,297.58

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

07.11.2019 Microsoft Excel Si FILE НОМE INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW A В D Н K M 1 Statement showing calculation of Net Present value of the Project 2 Operating income Addback Depreciation (3) Sales Revenues (1) Operating costs Depreciation - 2270000/3 756666.67 (3) Operating Income Tax @ 23 % before tax Cash flow after PV Factor Discounted Cash @ 11% SI.No. Year Particulars (2) Тax Inflows (5) (4)* 0.23 after tax (9) (7) (8) (4) (1)- (2)- (3) (6) (4)- (5) (8) (7) (6)+(3) 3 756,666.67 $ 756,666.67 $ 756,666.67 $ Total of discounted cash Inflows -(A) (1)(2) + (3) 1 Cash Inflow Year 1 $ 1,800,000.00 $ 710,000.00 $ 1,800,000.00 $710,000.00 $ 1,800,000.00 $ 710,000.00 333,333.33 $ 76,666.67 $ 333,333.33 $ 333,333.33 $ 76,666.67 $ 256,666.67 $ 756,666.67 $ 1,013,333.33 256,666.67 $ 756,666.67 $ 1,013,333.33 256,666.67 $ 756,666.67 $ 1,013,333.33 0.9009 S 4 1 912,912.91 2 Cash Inflow Year 2 76,666.67$ 0.8116 $ 0.7312 $ 822,444.07 5 2. 3 Cash Inflow Year 3 740,940.60 6 3 $ 2,476,297.58 7 4 $ 2,270,000.00 1.0000 2,270,000.00 0 Initial Investment - Net equipment cost 8 5 Total of Cash Outflows (B) $ 2,270,000.00 $ 9 7 Net Present value of the Project = (A) (B) 206,297.58 10 11 12. 13 14