Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1.645 million in annual sales, with costs of $610,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. 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 enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) × Answer is complete but not entirely correct. Z a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow b. NPV $ EA -2,430,000 EA $ 970,250 EA EA $ 970,250 $ 1,362,450 x $ 179,537.00 X
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1.645 million in annual sales, with costs of $610,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. 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 enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) × Answer is complete but not entirely correct. Z a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow b. NPV $ EA -2,430,000 EA $ 970,250 EA EA $ 970,250 $ 1,362,450 x $ 179,537.00 X
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 $2.18 million. The fixed asset qualifies for 100 percent
bonus depreciation in the first year. The project is estimated to generate $1.645 million in
annual sales, with costs of $610,000. The project requires an initial investment in net
working capital of $250,000, and the fixed asset will have a market value of $180,000 at
the end of the project. The tax rate is 21 percent.
a. 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 enter your answer in dollars, not millions of
dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
× Answer is complete but not entirely correct.
Z
a. Year 0 cash
flow
a. Year 1 cash
flow
a. Year 2 cash
flow
a. Year 3 cash
flow
b. NPV
$
EA
-2,430,000
EA
$
970,250
EA
EA
$
970,250
$
1,362,450 x
$
179,537.00 X
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