Question
1- Consider an asset that costs $600,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in
1- Consider an asset that costs $600,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $170,000. If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
Aftertax salvage value $
2- Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 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 $1,990,000 in annual sales, with costs of $685,000. The tax rate is 30 percent and the required return on the project is 18 percent. What is the projects NPV?
NPV $
3- 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 $250,000 at the end of the project. If the tax rate is 34 percent, what is the projects Year 0 net cash flow? Year 1? Year 2? Year 3?
YearsCash Flow
Year 0$
Year 1$
Year 2$
Year 3$
If the required return is 10 percent, what is the project's NPV?
NPV $
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