Problem 2: Calculating Project OCF Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless (zero salvage value). The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The applicable tax rate is 35 percent, and the required rate of return on the project is 12 percent. a) What is the Operating Cash Flow (OCF) for this project? b) What is the project's Net Present Value (NPV)?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Assignment 1.4
Problem 2: Calculating Project OCF
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset
investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year
life, after which time it will be worthless (zero salvage value). The project is estimated to generate
$2,190,000 in annual sales, with costs of $815,000. The applicable tax rate is 35 percent, and the
required rate of return on the project is 12 percent.
a) What is the Operating Cash Flow (OCF) for this project?
b) What is the project's Net Present Value (NPV)?
Transcribed Image Text:4 0 MA 12 Assignment 1.4 Problem 2: Calculating Project OCF Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless (zero salvage value). The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The applicable tax rate is 35 percent, and the required rate of return on the project is 12 percent. a) What is the Operating Cash Flow (OCF) for this project? b) What is the project's Net Present Value (NPV)?
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