Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project.
What is the projects Year 0 net cash flow? Year 1? Year 2? Year 3? The tax rate is 21 percent.
If the required return is 12 percent, what is the project's NPV?
YOU MUST SHOW FORMULAS IN EACH CELL.
Aftertax salvage value
| Asset investment | 2900000 | ||
| Estimated annual sales | 2190000 | ||
| Costs | 815000 | ||
| Net working capital | 300000 | ||
| Pretax salvage value | 210000 | ||
| Tax rate | 21% | ||
| Project and asset life | 3 | ||
| Required return | 12% | ||
| Sell Equiptment | |||
| Taxes | |||
| Aftertax cash flow | |||
| Sales | 2,190,00 | 2,190,00 | 2,190,00 |
| Costs | 815000 | 815000 | 815000 |
| Depreciation | |||
| EBT | |||
| Taxes | |||
| Net Income | |||
| Capital Spending | |||
| Networking Capital | |||
| OCF | |||
| Net cash flow | |||
| NPV |
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South Western Federal Taxation 2017 Essentials Of Taxation Individuals And Business Entities
Authors: William A. Raabe, David M. Maloney, James C. Young, Annette Nellen
20th Edition
9780357109144
