a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Esfandiairi Enterprises Expansion Project Analysis:**
Esfandiairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,790,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project.
### Questions:
**a. Cash Flow Analysis:**
- **Tax Rate:** 21%
- **Objective:** Determine the project’s net cash flow for Year 0, Year 1, Year 2, and Year 3.
- **Instructions:** A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions (e.g., 1,234,567).
**b. Net Present Value (NPV) Calculation:**
- **Required Return:** 12%
- **Objective:** Calculate the project's NPV.
- **Instructions:** Do not round intermediate calculations and round your answer to two decimal places (e.g., 32.16).
### Table for Responses:
- **a. Year 0 Cash Flow:**
- **a. Year 1 Cash Flow:**
- **a. Year 2 Cash Flow:**
- **a. Year 3 Cash Flow:**
- **b. NPV:**
This exercise guides students through calculating cash flows and NPV based on given project conditions and financial data.
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