9 Depreciation $2,320,000 3 $773,333 33 Profit before tax Sales costs depreciation $1,735,000 $650,000 $773,333 33 $311,666 67 Profit after tax Profit before tax (1 Tax rate) $311,666 67 (1 0 21) $246,216 67 OCF Profit after tax Depreciation $246,216 67 $773,333 33 $1,019,550 OCF $1,019,550 Please answer this question based on information from the above completed problem 9 Calculating Project OCF LO1 Quad Enterprises is considering a new three year expansion project that requires an initial fixed asset investment of $2 32 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 $1 735 million in annual sales, with costs of $650,000 If the tax rate is 21 percent, what is the OCF for this project 13 NPV and Bonus Depreciation LO1 In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year All the other facts are the same What is the project's Year 1 net cash flow now Year 2 Year 3 What is the new NPV

Question

9  Depreciation   $2,320,000   3   $773,333 33 Profit before tax   Sales   costs   depreciation   $1,735,000   $650,000   $773,333 33   $311,666 67 Profit after tax   Profit before tax   (1   Tax rate)   $311,666 67   (1   0 21)   $246,216 67 OCF   Profit after tax   Depreciation   $246,216 67   $773,333 33   $1,019,550 OCF   $1,019,550 Please answer this question based on information from the above completed problem  9  Calculating Project OCF  LO1  Quad Enterprises is considering a new three year expansion project that requires an initial fixed asset investment of $2 32 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 $1 735 million in annual sales, with costs of $650,000  If the tax rate is 21 percent, what is the OCF for this project  13  NPV and Bonus Depreciation  LO1  In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year  All the other facts are the same  What is the project's Year 1 net cash flow now  Year 2  Year 3  What is the new NPV

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Question

9. Depreciation = $2,320,000 / 3 = $773,333.33 Profit before tax = Sales - costs - depreciation = $1,735,000 - $650,000 - $773,333.33 = $311,666.67

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