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. Assume that the tax rate is 21 percent and the required return on the project is 12 percent. a. What are the net cash flows of the project for each year? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. b. What is the NPV of the project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. 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 $2.18 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. Assume that the tax rate is 21 percent and the required return on the project is 12 percent. a. What are the net cash flows of the project for each year? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. b. What is the NPV of the project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
Related questions
Question
![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. Assume that the tax rate is 21
percent and the required return on the project is 12 percent.
a. What are the net cash flows of the project for each year?
Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.
b. What is the NPV of the project?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.
a. Year 0 cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
b. NPV](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9187ab5b-cd6c-41c6-9d26-ddf88a4a6300%2Ff9225201-69da-4fe7-9ee3-88b5736fc1e1%2Fl6sc6zl_processed.jpeg&w=3840&q=75)
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 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. Assume that the tax rate is 21
percent and the required return on the project is 12 percent.
a. What are the net cash flows of the project for each year?
Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.
b. What is the NPV of the project?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.
a. Year 0 cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
b. NPV
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)