Quad Enterprises is considering a new three-year expansion project that requires
ID: 2741246 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2, 100, 000 in annual sales, with costs of $791, 000. The project requires an initial investment in net working capital of $320, 000, and the fixed asset will have a market value of $220, 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 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.) If the required return is 12 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
Year Total 0 1 2 3 Depreciation Rate 33.33% 44.45% 14.81% Cost of Fixed Asset 2760000 Depreciation Amount 919908.00 1226820.00 408756.00 Annual Sales 2100000.00 2100000.00 2100000.00 Less Cost other than Deprecitaion 791000.00 791000.00 791000.00 1309000.00 1309000.00 1309000.00 Less Depreciation 919908.00 1226820.00 408756.00 Profit before tax 389092.00 82180.00 900244.00 Less ; Tax @ 34% 132291.28 27941.20 306082.96 Net Income 256800.72 54238.80 594161.04 Cash Flow from operation (NI + Depreciation) 1176708.72 1281058.80 1002917.04 Working Capital requirement 320000 Salvage 220000.00 Total Cash flow -3080000 1176708.72 1281058.80 1222917.04 DF @ 12% 1 0.8929 0.7972 0.7118 Present Value -3080000 1050632.786 1021252.232 870448.1938 -137667 Cash Flow Year 3 1222917.04 NPV -137666.79