Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset Investment of $2,270,000. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1,800,000 in annual sales, with costs of $692,000. The project requires an initial investment in net working capital of $430,000, and the fixed asset will have a market value of $450,000 at the end of the project. a. If the tax rate is 23 percent, what is the project's Year O net cash flow? Year 12 Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to two decimal places, e.g., 32.16. b. If the required return is 10 percent, what is the project's NPV? Note: Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset Investment of $2,270,000. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1,800,000 in annual sales, with costs of $692,000. The project requires an initial investment in net working capital of $430,000, and the fixed asset will have a market value of $450,000 at the end of the project. a. If the tax rate is 23 percent, what is the project's Year O net cash flow? Year 12 Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to two decimal places, e.g., 32.16. b. If the required return is 10 percent, what is the project's NPV? Note: Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV
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:Esfandair Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,270,000.
The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1,800,000 in annual
sales, with costs of $692,000. The project requires an initial investment in net working capital of $430,000, and the fixed asset will
have a market value of $450,000 at the end of the project.
a. If the tax rate is 23 percent, what is the project's Year O net cash flow? Year 12 Year 2? Year 3?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers
to two decimal places, e.g., 32.16.
b. If the required return is 10 percent, what is the project's NPV?
Note: Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16.
a. Year 0 cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
b. NPV
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