Quad Enterprises is considering a new three-year expansion project that requires
ID: 2715384 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $3 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will have a market value of $248430. The project is estimated to generate $2453460 in annual sales, with costs of $943717. The project requires an initial investment in net working capital (NWC) of $274417 and the same amount of NWC in every year of production. If the tax rate is 18 percent, what is the project's Year 3 net cash flow?
Round your final answer to the nearest dollar
Explanation / Answer
Cash Outflows ($)
1
Annual Sales ($)
2
Annual Cost($)
3
Depreciation($)
4
Annual earnings($)
5
Terminal value ($)
6
Tax @ 18%
7
Earnings after tax
8
Cash flows before depreciation after tax ($)
(8+4-1)
The correct answer should be $ 1,347,285, i.e the net cash flow for Year 3.
PeriodCash Outflows ($)
1
Annual Sales ($)
2
Annual Cost($)
3
Depreciation($)
4
Annual earnings($)
5
Terminal value ($)
6
Tax @ 18%
7
Earnings after tax
8
Cash flows before depreciation after tax ($)
(8+4-1)
0 (3000000) 1 (274417) 2453460 943717 1000,000 509743 91,754 417989 1143572 2 (274417) 2453460 943717 1000,000 509743 91,754 417989 1143572 3 (274417) 2453460 943717 1000,000 509743 248,430 136471 621702 1347285