Night Esfandairi Enterprises is considering a new three-year expansion project that requires aninitial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project isestimated to generate $1.645 million in annual sales, with costs of $610,000. The projectrequires an initial investment in net working capital of $250,000, and the fixed asset willhave a market value of $180,000 at the end of the project. The tax rate is 21 percent.a. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answershould be indicated by a minus sign. Do not round intermediate calculations andenter your answers in dollars, not millions of dollars, e.g., 1,234,567.)b. If the required return is 12 percent, what is the project's NPV? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)> Answer is complete but not entirely correct.a. Year 0 cash flow$-2,430,000a. Year 1 cash flow$308,333 xa. Year 2 cash flow$308,333 xa. Year 3 cash flowEA$1,941,667 xb. NPV$409,276.21 X

Step 1:a)We have to calculate the cash flows for the following years.Calculations are shown…

Answered: Esfandairi Enterprises is considering a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
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ces Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. 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 round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow a. Year 1 cash…
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. 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 0 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 round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow a. Year 1 cash flow…
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