Quad Enterprises is considering a new three-year expansion project that requires
ID: 2772090 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project.
If the required return is 9 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.)
use the table to calcate deprication
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project.
Explanation / Answer
Calculation of Cash Flows Year 0 Year1 Year2 Year 3 Outflows -2970000 Investment in Net Capital -390000 Inflows Sales 2170000 2170000 2170000 Cost 847000 847000 -847000 Salvage Value 255000 Cash Flows -3360000 1323000 1323000 1578000 Depreciation 2970000-250000=2720000 2720000@33.33% 906576 44.45% 1209040 14.81% 402832 Net Profit 416424 113960 1175168 Taxes@35% 145748.4 39886 411308.8 270675.6 74074 763859.2 Add Dep 906576 1209040 402832 Savings in Taxes 317301.6 423164 140991.2 due to dep Net Cashj Flows -3360000 1494553 1706278 1307682