Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,400,00 The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $3,030,000 annual sales, with costs of $2,030,000. The project requires an initial investment in net working capital of $168,000, and the fixed asset will have a market value of $203,000 at the end of the project. Assume that the tax rate is 23 percent and the required return the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,400,00 The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $3,030,000 annual sales, with costs of $2,030,000. The project requires an initial investment in net working capital of $168,000, and the fixed asset will have a market value of $203,000 at the end of the project. Assume that the tax rate is 23 percent and the required return the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: 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:Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,400,000.
The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $3,030,000 in
annual sales, with costs of $2,030,000. The project requires an initial investment in net working capital of $168,000, and the fixed
asset will have a market value of $203,000 at the end of the project. Assume that the tax rate is 23 percent and the required return on
the project is 10 percent.
a. What are the net cash flows of the project each year?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answers to the nearest whole number, e.g., 32.
b. What is the NPV of the project?
Note: Do not round intermediate calculations and round your answer to 2 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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