Quad Enterprises is considering a new three-year expansion project that requires
ID: 2775358 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project.
If the required return is 16 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 $2.49 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project.
Explanation / Answer
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project.
If the required return is 16 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.)
NPV = -2720000 + 1134231.78/1.16 + 1228373.70/1.16^2 + 1464874.52/1.16^3
NPV = 109150.88
Working
Post Tax Salvage Value = (Salvage Value - tax rate*(salvage Value - book value)
Post Tax Salvage Value = (295000 - 34%*(295000 - 2490000*7.41%))
Post Tax Salvage Value = $ 257,433.06
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project.