Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...

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Quad Enterprises is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $1.3 million.The fixed asset falls into the 3-year MACRS class (MACRS Table) andwill have a market value of $100,800 after 3 years. The projectrequires an initial investment in net working capital of $144,000.The project is estimated to generate $1,152,000 in annual sales,with costs of $460,800. The tax rate is 25 percent and the requiredreturn on the project is 17 percent.

What is the project's year 0 net cash flow?
What is the project's year 1 net cash flow?
What is the project's year 2 net cash flow?
What is the project's year 3 net cash flow?
What is the NPV?

Answer & Explanation Solved by verified expert

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	year	0	1	2	3
A	Initial investment	(1,300,000)
B	Net working capital	-144000			144000

	Computation of operating cash flow
i	Sales		1,152,000	1,152,000	1,152,000
ii	Cost		460,800	460,800	460,800
iii	Depreciation rate		33.33%	44.45%	14.81%
iv	Depreciation amount		433290	577850	192530
v	Profit before tax		257,910	113,350	498,670
vi	Tax @ 25%		64477.5	28337.5	124667.5
vii	Profit after tax		193,433	85,013	374,003
C	Operating cash flow		626,723	662,863	566,533

D	Salvage value				99682.5
	=100800-(100800-13000007.41%)(25%)

E=A+B+C+D	Net cash flow	(1,444,000)	626,723	662,863	810,215

F	PVIF @ 17%	1.0000	0.8547	0.7305	0.6244
G	present value	(1,444,000)	535,660	484,230	505,874	81,765

Ans
	Net cash flow in year 0	(1,444,000)
	Net cash flow in year 1	626,723
	Net cash flow in year 2	662,863
	Net cash flow in year 3	810,215
	NPV =	81,765

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Transcribed Image Text

Quad Enterprises is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $1.3 million.The fixed asset falls into the 3-year MACRS class (MACRS Table) andwill have a market value of $100,800 after 3 years. The projectrequires an initial investment in net working capital of $144,000.The project is estimated to generate $1,152,000 in annual sales,with costs of $460,800. The tax rate is 25 percent and the requiredreturn on the project is 17 percent. What is the project's year 0 net cash flow?What is the project's year 1 net cash flow?What is the project's year 2 net cash flow?What is the project's year 3 net cash flow?What is the NPV?