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Esfandairi Enterprises is considering a new three-yearexpansion project that requires an initial fixed asset investment of $2.18 million.The fixed asset falls into thethree-year MACRS class.
Esfandairi Enterprises is considering a new three-yearexpansion project that requires an initial fixed asset investment of $2.18 million.The fixed asset falls into thethree-year MACRS class. The project is estimated to generate $1.645 millionin annual sales, with costs of $610,000. The tax rate is 21 percent and the required return is 12 percent.Supposethe project requires an initial investment in net workingcapital of $250,000, andthe fixed asset will have a market value of $180,000 at the end of the project. What isthe project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the NPV? Input area: Asset investment $2,180,000 Estimated annual sales $1,645,000 Costs $610,000 Tax rate 21% Required return 12% Initial investment in NWC $250,000 Fixed asset value at end $180,000 MACRS percentages Year 1 0.3333 Year 2 0.4445 Year 3 0.1481 (Use cells A6 to B16 from the given information to complete this question. You must use the built-in Excel function to answer this question. Taxes on the salvage value should be negative for a tax liability and positive for a tax credit.) Output area: Year 0 Year 1 Year 2 Year 3 Sales Costs Depreciation EBT Taxes Net income Fixed asset book value in three years Aftertax salvage value Sell equipment Taxes Aftertax salvage value Capital spending Net working capital OCF Total cash flow NPV
| Esfandairi Enterprises is considering a new three-yearexpansion project that requires an initial fixed asset investment of $2.18 million.The fixed asset falls into thethree-year MACRS class. The project is estimated to generate $1.645 millionin annual sales, with costs of $610,000. The tax rate is 21 percent and the required return is 12 percent.Supposethe project requires an initial investment in net workingcapital of $250,000, andthe fixed asset will have a market value of $180,000 at the end of the project. What isthe project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the NPV? | ||||||
| Input area: | ||||||
| Asset investment | $2,180,000 | |||||
| Estimated annual sales | $1,645,000 | |||||
| Costs | $610,000 | |||||
| Tax rate | 21% | |||||
| Required return | 12% | |||||
| Initial investment in NWC | $250,000 | |||||
| Fixed asset value at end | $180,000 | |||||
| MACRS percentages | ||||||
| Year 1 | 0.3333 | |||||
| Year 2 | 0.4445 | |||||
| Year 3 | 0.1481 | |||||
| (Use cells A6 to B16 from the given information to complete this question. You must use the built-in Excel function to answer this question. Taxes on the salvage value should be negative for a tax liability and positive for a tax credit.) | ||||||
| Output area: | ||||||
| Year 0 | Year 1 | Year 2 | Year 3 | |||
| Sales | ||||||
| Costs | ||||||
| Depreciation | ||||||
| EBT | ||||||
| Taxes | ||||||
| Net income | ||||||
| Fixed asset book value | ||||||
| in three years | ||||||
| Aftertax salvage value | ||||||
| Sell equipment | ||||||
| Taxes | ||||||
| Aftertax salvage value | ||||||
| Capital spending | ||||||
| Net working capital | ||||||
| OCF | ||||||
| Total cash flow | ||||||
| NPV | ||||||
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
