Quad Enterprises is considering a new three-year expansion project that requires
ID: 2715824 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,990,000 in annual sales, with costs of $685,000. The project requires an initial investment in net working capital of $210,000, and the fixed asset will have a market value of $305,000 at the end of the project. If the tax rate is 30 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.) 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.)Explanation / Answer
Discount rate 18% Year 0 1 2 3 Initial investment -2430000 Networking capital investment -210000 Depretiation(used for tax benefit) 810000 810000 810000 Sales revenue 1990000 1990000 1990000 Cost 685000 685000 685000 Salvage Value 305000 Net CF -2640000 1305000 1305000 1610000 Tax@30% 0 148500 148500 240000 Post tax CF -2640000 1156500 1156500 1370000 Discounted CF@18% -2640000 980084.7 830580.3 833824.3 NPV 4489.334