1. P10-12 NPV and Modified ACRS [LO1]

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.5 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $348,600 after 3 years. The project requires an initial investment in net working capital of $498,000. The project is estimated to generate $3,984,000 in annual sales, with costs of $1,593,600. The tax rate is 24 percent and the required return on the project is 11 percent.

a. What is the project's year 0 net cash flow?

b. What is the project's year 1 net cash flow?

c. What is the project's year 2 net cash flow?

d. What is the project's year 3 net cash flow?

e. What is the NPV?

2. P10-14 Project Evaluation [LO1]

Dog Up! Franks is looking at a new sausage system with an installed cost of $163,800. This cost will be depreciated straight-line to zero over the project's 8-year life, at the end of which the sausage system can be scrapped for $25,200. The sausage system will save the firm $50,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $11,760.

If the tax rate is 25 percent and the discount rate is 10 percent, what is the NPV of this project?

• $71,097.05

• $73,985.35

• $67,711.48

• $65,168.36

• $58,894.49