Problem 6-4 Calculating Project Cash Flow from AssetsEsfandairi Enterprises is considering a new 3-year expansion project that requires aninitial fixed asset investment of $2.29 million. The fixed asset will be depreciatedstraight-line to zero over its 3-year tax life. The project is estimated to generate$1,790,000 in annual sales, with costs of $700,000. The project requires an initialinvestment in net working capital of $410,000, and the fixed asset will have a marketvalue of $420,000 at the end of the project.a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2?Year 3? (Do not round intermediate calculations and enter your answers in dollars,not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by aminus sign.)b. If the required return is 12 percent, what is the project's NPV? (Do not roundintermediate calculations and enter your answer in dollars, not millions of dollars,rounded to 2 decimal places, e.g., 1,234,567.89.)a. Year 0 cash flowa. Year 1 cash flowa. Year 2 cash flowa. Year 3 cash flowb. NPV

The cash flow for year 0 will be negative because investments are made in project and working…

Answered: Problem 6-4 Calculating Project Cash…

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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Required formula & step by stepRobert Corporation is considering a new three-year project that requires an initial fixed investment of $2,400,000. 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 requires an initial investment in net working capital of $120,000 which will be recovered at the end of the project’s life. It is estimated to generate $1,500,000, $1,800,000 and $2,400,000 in annual sales in these 3 years. Besides, it is estimated that the costs will be $$600,000, $800,000 and $1,000,000 respectively in these 3 years. The tax rate is 20 percent. A) Prepare the Pro Forma Income Statement for Robert Corporation in these 3 years.B) Prepare the Projected Operating Cash Flow Statement for Robert Corporation in these 3 yearsC) Suppose the required return on the project is 17 percent. What is the net present value (NPV) of the project? Explain why should accept this project.
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After-tax cash flows: Year 1 2 3 4 Project Alpha R 37 000 72 400 246 000 Project Omega R 72 000 72 000 72 000 72 000 Both projects require an initial investment of R235 400 and the cost of capital is 12%. As the project manager of Delta Construction Ltd. you are required to: 1.2.1 Calculate the Net Present Valub (NPV) for both projects. 1.2.2 Recommend, with reasons which project should be chosen
Problem 6-6 NPV and Bonus Depreciation Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $1,790,000 in annual sales, with costs of $684,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 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 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 two decimal places, e.g., 1,234,567.89.) a. Year 0 cash…
Give typing answer with explanation and conclusion Consolidated Industries is considering a 4- year project. The project is expected to generate operating cash flows of $2 million, $6, million, $5 million, and $3 million over the four years, respectively. It will require initial capital expenditures of $12 million dollars and an intitial investment in NWC of $6 million. The firm expects to generate a $8 million after tax salvage value from the sale of equipment when the project ends, and it expects to recover 100% of its nwc investments. Assuming the firm requires a return of 10% for projects of this risk level, what is the project's NPV? $4,061,769 $3,854,536 $3,937,429 $3,771,643 $4,144,662
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2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?
A1
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Question 3 A company has $20 million available to invest in new projects. There are three independent projects that it is considering. The after-tax cash flows of the projects are as follows: Project ABC Year 0 cash flow (20 million) (10 million) (10 million) Year 1 cash flow 20 million 8 million 6 million Year 2 cash flow 10 million 7 million 10 million Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the company should invest in (and why). The company's cost of capital is 12%.
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q4- Project A requires an initial outlay of $10000 and will last for 5 years. The investment will be depreciated using straight‐line depreciation to a book value of 0 over the life of the project. The corporate tax rate is 30% and the required rate of return is 8%. What is the annual depreciation amount for Project A?

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