Quad Enterprises is considering a new three-year expansion project that requires
ID: 2766796 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,980,000 in annual sales, with costs of $675,000. The tax rate is 34 percent and the required return on the project is 18 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 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 $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,980,000 in annual sales, with costs of $675,000. The tax rate is 34 percent and the required return on the project is 18 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 answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
YEAR SALES COST INCOME TAX@34% CASH FLOWS DISCOUNT@18% PVCF
1 1980000 675000 1305000 443700 861300 0.8475 729951.75
2 1980000 675000 1305000 443700 861300 0.7182 618585.66
3 1980000 675000 1305000 443700 861300 0.6086 524187.18
Total PV cash flows 1872724.59
initial investment (2400000)
NPV (527275.41).