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 $2.73million. 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 $2,090,000 inannual sales, with costs of $785,000. The project requires aninitial investment in net working capital of $310,000, and thefixed asset will have a market value of $215,000 at the end of theproject. If the tax rate is 30 percent, what is the project’s Year0 net cash flow? Year 1? Year 2? Year 3? (Do not roundintermediate calculations. Enter your answers in dollars, notmillions of dollars, e.g. 1,234,567. Negative amounts should beindicated by a minus sign.)

  Years Cash Flow
  Year 0 $ -3040000
  Year 1 $   1186500
  Year 2 $   1186500
  Year 3 $ ?
If the required return is 13 percent, what is the project's NPV?(Do not round intermediate calculations and round yourfinal answer to 2 decimal places, e.g., 32.16.)
  NPV $ ?

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3.8 Ratings (649 Votes)

Solution The Project Cash Flows s Year wise areYear 0 Initial Investment Initial NetWorking Capital See Answer

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Quad Enterprises is considering a new three-year expansionproject that requires an initial fixed asset investment of $2.73million. 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 $2,090,000 inannual sales, with costs of $785,000. The project requires aninitial investment in net working capital of $310,000, and thefixed asset will have a market value of $215,000 at the end of theproject. If the tax rate is 30 percent, what is the project’s Year0 net cash flow? Year 1? Year 2? Year 3? (Do not roundintermediate calculations. Enter your answers in dollars, notmillions of dollars, e.g. 1,234,567. Negative amounts should beindicated by a minus sign.) YearsCash Flow Year 0$ -3040000 Year 1$ 1186500 Year 2$ 1186500 Year 3$ ?If the required return is 13 percent, what is the project's NPV?(Do not round intermediate calculations and round yourfinal answer to 2 decimal places, e.g., 32.16.) NPV$ ?

Years	Cash Flow
Year 0	$ -3040000
Year 1	$ 1186500
Year 2	$ 1186500
Year 3	$ ?