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

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Quad Enterprises is considering a new three-year expansionproject that requires an initial fixed asset investment of $2.56million. The fixed asset will be depreciated straight-line to zeroover its three-year tax life and is estimated to have a marketvalue of $207277 at the end of the project. The project isestimated to generate $2061404 in annual sales, with costs of$815049. The project requires an initial investment in net workingcapital of $369999. If the tax rate is 38 percent and the requiredreturn on the project is 11 percent, what is the project's NPV?(Negative amount should be indicated by a minus sign. Do not roundintermediate calculations and round your final answer to thenearest dollar amount. Omit the "$" sign and commas in yourresponse. For example, $123,456.78 should be entered as123457.)

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4.2 Ratings (746 Votes)

Time line		0	1	2	3



Cost of new machine		-2560000
Initial working capital		-369999
=Initial Investment outlay		-2929999


Sales			2061404	2061404	2061404
Profits	Sales-variable cost		1246355	1246355	1246355


-Depreciation	Cost of equipment/no. of years		-853333.333	-853333.33	-853333.33

=Pretax cash flows			393021.6667	393021.667	393021.667
-taxes	=(Pretax cash flows)*(1-tax)		243673.4333	243673.433	243673.433
+Depreciation			853333.3333	853333.333	853333.333
=after tax operating cash flow			1097006.767	1097006.77	1097006.77

reversal of working capital					369999

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)				128511.74
+Tax shield on salvage book value	=Salvage value * tax rate				0
=Terminal year after tax cash flows					498510.74

Total Cash flow for the period		-2929999	1097006.767	1097006.77	1595517.51
Discount factor=	(1+discount rate)^corresponding period	1	1.11	1.2321	1.367631
Discounted CF=	Cashflow/discount factor	-2929999	988294.3844	890355.301	1166628.65
NPV=	Sum of discounted CF=	115279

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Transcribed Image Text

Quad Enterprises is considering a new three-year expansionproject that requires an initial fixed asset investment of $2.56million. The fixed asset will be depreciated straight-line to zeroover its three-year tax life and is estimated to have a marketvalue of $207277 at the end of the project. The project isestimated to generate $2061404 in annual sales, with costs of$815049. The project requires an initial investment in net workingcapital of $369999. If the tax rate is 38 percent and the requiredreturn on the project is 11 percent, what is the project's NPV?(Negative amount should be indicated by a minus sign. Do not roundintermediate calculations and round your final answer to thenearest dollar amount. Omit the "$" sign and commas in yourresponse. For example, $123,456.78 should be entered as123457.)