Quad Enterprises is considering a new three-year expansion project that requires
ID: 2617194 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,980,000 in annual sales, with costs of $675,000 The project requires an initial investment in net working capital of $200,000, and the fixed asset will have a market value of $310,000 at the end of the project. If the tax rate is 34 percent, what is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.) Years Year 0 Year 1 Year 2 Year 3 Cash Flow $ (2600000) If the required return is 18 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV $ 110355.56 References eBook & ResourcesExplanation / Answer
Particulars Year 0 Year 1 Year 2 Year 3 Annual operating cash flow 11,33,300 11,33,300 11,33,300 Terminal cash flow 2,04,600 Initial cash outflow -26,00,000 Annual cash flow -26,00,000 11,33,300 11,33,300 13,37,900 Present value factor @18% 1.000 0.847 0.718 0.609 Present value -26,00,000.00 9,60,423.73 8,13,918.41 8,14,287.24 NPV -11,370.61 Annual operating cash flow Sales 19,80,000 Less costs 6,75,000 Less depreciation 8,00,000 Profit 5,05,000 Less tax 1,71,700 Profit after tax 3,33,300 Add depreciation 8,00,000 Annual operating cash flow 11,33,300 Terminal cash flow Salvage value 310000 Less tax 105400 Terminal cash flow 204600