Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,290,000 in annual sales, with costs of $1,310,000. The project requires an initial investment in net working capital of $160,000, and the fixed asset will have a market value of $195,000 at the end of the project. Assume that the tax rate is 21 percent and the required return on the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV

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
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Problem 9-11 Calculating Project Cash Flow from Assets [LO 2]
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000.
The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,290,000 in
annual sales, with costs of $1,310,000. The project requires an initial investment in net working capital of $160,000, and the fixed asset
will have a market value of $195,000 at the end of the project. Assume that the tax rate is 21 percent and the required return on the
project is 10 percent.
a. What are the net cash flows of the project each year?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answers to the nearest whole number, e.g., 32.
b. What is the NPV of the project?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
a. Year 0 cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
b. NPV
Transcribed Image Text:Book erences Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,290,000 in annual sales, with costs of $1,310,000. The project requires an initial investment in net working capital of $160,000, and the fixed asset will have a market value of $195,000 at the end of the project. Assume that the tax rate is 21 percent and the required return on the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV
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