Quad Enterprises is considering a new three-year expansion project that requires
ID: 2710610 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 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 $2,010,000 in annual sales, with costs of $705,000. The tax rate is 34 percent and the required return on the project is 16 percent. What is the project’s NPV? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV
$
NPV
$
Explanation / Answer
Particulars Time PVf@16% Amount PV Cash Outflows - 1.00 (2,490,000.00) (2,490,000.00) PV of Cash outflows (2,490,000.00) Cash inflows 1.00 0.8621 1,143,500.00 985,775.86 Cash inflows 2.00 0.7432 1,143,500.00 849,806.78 Cash inflows 3.00 0.6407 1,143,500.00 732,592.05 PV of Cash Inflows 2,568,174.69 NPV 78,174.69 Particulars Amount Annual Sales 2,010,000.00 Costs (705,000.00) Depreciation 2490,000/3 (830,000.00) Income before tax 475,000.00 Tax @34% (161,500.00) Income after Tax 313,500.00 Depreciation 2490,000/3 830,000.00 Cash flows after tax 1,143,500.00