7A) Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset...

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7A) Quad Enterprises is considering a new three-year expansionproject that requires an initial fixed asset investment of $2.9million. The fixed asset will be depreciated straight-line to zeroover its three-year tax life, after which time it will beworthless. The project is estimated to generate $2,190,000 inannual sales, with costs of $815,000. If the tax rate is 35percent, what is the OCF for this project? Suppose the requiredreturn on the project is 12 percent. What is the project'sNPV?
7B) In the previous problem, suppose the project requires aninitial investment in net working capital of $300,000, and thefixed asset will have a market value of $210,000 at the end of theproject. What is the project's Year 0 net cash flow? Year 1? Year2? Year 3? What is the new NPV?
7C) Suppose the fixed asset actually falls into the three-yearMACRS class. All the other facts are the same. What is theproject's Year 1 net cash flow now? Year 2? Year 3? What is the newNPV?
Please include ALL Excel formulas in your answer. Shortenedversion please.

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4.4 Ratings (889 Votes)

7A Annual sales 2190000 Costs 815000 Depreciation 29000003 966667 NOI 408333 Tax at 35 142917 NOPAT 265417 Add Depreciation 966667 OCF 1232083 NPV 29000001232083112310121123 59255 7B 0 1 2 3 Annual sales 2190000 2190000 2190000 Costs See Answer

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7A) Quad Enterprises is considering a new three-year expansionproject that requires an initial fixed asset investment of $2.9million. The fixed asset will be depreciated straight-line to zeroover its three-year tax life, after which time it will beworthless. The project is estimated to generate $2,190,000 inannual sales, with costs of $815,000. If the tax rate is 35percent, what is the OCF for this project? Suppose the requiredreturn on the project is 12 percent. What is the project'sNPV?7B) In the previous problem, suppose the project requires aninitial investment in net working capital of $300,000, and thefixed asset will have a market value of $210,000 at the end of theproject. What is the project's Year 0 net cash flow? Year 1? Year2? Year 3? What is the new NPV?7C) Suppose the fixed asset actually falls into the three-yearMACRS class. All the other facts are the same. What is theproject's Year 1 net cash flow now? Year 2? Year 3? What is the newNPV?Please include ALL Excel formulas in your answer. Shortenedversion please.