Esfandairi Enterprises is considering a new three-yearexpansion project that requires an initial fixed asset investmentof $2,300,000. The fixed asset will be depreciated straight-lineto zero over its three-year tax life. The project is estimated togenerate $2,900,000 in annual sales, with costs of $1,910,000.The project requires an initial investment in net working capitalof $186,000, and the fixed asset will have a market value of$221,000 at the end of the project. Assume that the tax rate is21 percent and the required return on the project is 12 percent.a. What are the net cash flows of the project each year?Note: A negative answer should be indicated by a minussign. Do not round intermediate calculations and roundyour answers to the nearest whole number, e.g., 32.b. What is the NPV of the project?Note: Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.a. Year 0 cash flowYear 1 cash flowYear 2 cash flowYear 3 cash flowb. NPV

Compute the net cash flows and NPV: Excel Compute the net cash flows and NPV: Workings process: (…

Answered: Esfandairi Enterprises is considering a…

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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Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.35 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1,745,000 in annual sales, with costs of $648,000. The project requires an initial investment in net working capital of $320,000, and the fixed asset will have a market value of $285,000 at the end of the project. a. If the tax rate is 22 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 11 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answers 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…
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