Quad Enterprises is considering a new three-year expansion project that requires
ID: 2722410 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,040,000 in annual sales, with costs of $743,000. The project requires an initial investment in net working capital of $260,000, and the fixed asset will have a market value of $280,000 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? (MACRS schedule) (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.)
If the required return is 15 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 final answer to 2 decimal places, e.g., 32.16.)
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,040,000 in annual sales, with costs of $743,000. The project requires an initial investment in net working capital of $260,000, and the fixed asset will have a market value of $280,000 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? (MACRS schedule) (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.)
If the required return is 15 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 final answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
We can calculat the NPV by discounting cashflows at 15% = 74049
P&L 0 1 2 3 Sales 2040000 2040000 2040000 Cost 743000 743000 743000 Depreciation 33.33% 44.45% 14.81% 7.42% Depreciation 859914 1146810 382098 191307 PBT(Sales- Cost - Depreciation) 437086 150190 914902 Tax 148609.2 51064.6 311066.7 PAT 288476.8 99125.4 603835.3 Cashflows Operating cashflows PAT +Depreciation 1148391 1245935 985933.3 Investing cashflows Purchase of asset -2580000 Working capital -2,60,000 Release of WC 2,60,000 Sales of ASSet 251291.8 Total Cashflows -28,40,000 1148391 1245935 14,97,225We can calculat the NPV by discounting cashflows at 15% = 74049