Quad Enterprises is considering a new three-year expansion project that requires
ID: 2760557 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,160,000 in annual sales, with costs of $855,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 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? (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 10 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.)
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,160,000 in annual sales, with costs of $855,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 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? (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.)
Explanation / Answer
cost of machine 2940000 PI discounted cash inflow/cash outflow 2.547802 scrap value 250000 IRR 53% 2690000 Depreciation 896666.7 cash outflow 2940000 380000 3320000 sales expenses net profit dep after dep profit tax@34% profit after tax dep profit after tax before dep present value @10% present value of cash flow 1 2160000 855000 1305000 896666.7 408333.3 138833.3 269500 896666.7 1166167 0.909091 1060152 2 2160000 855000 1305000 896666.7 408333.3 138833.3 269500 896666.7 1166167 0.826446 963774.1 3 2160000 855000 1305000 896666.7 408333.3 138833.3 269500 896666.7 1166167 0.751315 876158.3 630000 0.751315 473328.3 Present value of cash inflow 3373412 present value of cash outflow 3320000 NPV 53412.22