Esfandairi Enterprises is considering a new 3-year expansion project that requires an nitial fixed asset investment of $2.37 million. The fixed asset qualifies for 100 percent ponus depreciation. The project is estimated to generate $1,755,000 in annual sales, with costs of $656,000. The project requires an initial investment in net working capital of $340,000, and the fixed asset will have a market value of $315,000 at the end of the project. a. If the tax rate is 24 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (0 negative an should

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Problem 6-6 NPV and Bonus Depreciation
Esfandairi Enterprises is considering a new 3-year expansion project that requires an
initial fixed asset investment of $2.37 million. The fixed asset qualifies for 100 percent
bonus depreciation. The project is estimated to generate $1,755,000 in annual sales,
with costs of $656,000. The project requires an initial investment in net working capital
of $340,000, and the fixed asset will have a market value of $315,000 at the end of the
project.
a. If the tax rate is 24 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 9 percent, what is the project's NPV? (Do not round
intermediate calculations and enter your answer in dollars, not millions of dollars,
rounded to two decimal places, e.g., 1,234,567.89.)
a. Year 0 cash flow
a. Year 1 cash flow
a. Year 2 cash flow
a. Year 3 cash flow
b. NPV
Transcribed Image Text:Problem 6-6 NPV and Bonus Depreciation Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $1,755,000 in annual sales, with costs of $656,000. The project requires an initial investment in net working capital of $340,000, and the fixed asset will have a market value of $315,000 at the end of the project. a. If the tax rate is 24 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 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow b. NPV
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