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 on a three-year MACRS schedule. The 3 project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? The tax rate is 21 percent. If the required return is 12 percent, what is the project's NPV? 4 Asset investment %24 2,900,000 2,190,000 815,000 Estimated annual sales $ 8 Costs 24 $ Net working capital Pretax salvage value Tax rate 300,000 24 210,000 21% 10 11 Project and asset life Required return MACRS percentages 12 3. 13 12% 14 15 Year 1 0.3333 16 Year 2 0.4445 17 Year 3 0.1481 18 19
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 on a three-year MACRS schedule. The 3 project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? The tax rate is 21 percent. If the required return is 12 percent, what is the project's NPV? 4 Asset investment %24 2,900,000 2,190,000 815,000 Estimated annual sales $ 8 Costs 24 $ Net working capital Pretax salvage value Tax rate 300,000 24 210,000 21% 10 11 Project and asset life Required return MACRS percentages 12 3. 13 12% 14 15 Year 1 0.3333 16 Year 2 0.4445 17 Year 3 0.1481 18 19
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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Transcribed Image Text: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 on a three-year MACRS schedule. The
project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The project
requires an initial investment in net working capital of $300,000, and the fixed asset will have a market
value of $210,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2?
Year 3? The tax rate is 21 percent. If the required return is 12 percent, what is the project's NPV?
4
6.
Asset investment
2$
Estimated annual sales $
24
$4
24
2,900,000
2,190,000
815,000
300,000
7
8.
Costs
Net working capital
Pretax salvage value
9
210,000
21%
10
11
Tax rate
Project and asset life
13 Required return
MACRS percentages
12
12%
14
15
Year 1
0.3333
16
Year 2
0.4445
17
Year 3
0.1481
18
19
Transcribed Image Text:20 Complete the following analysis. Do not hard code values in your calculations. You must use
the built-in Excel function to calculate the NPV.
21
22 Sales
23 Costs
24 Depreciation
EBT
26 Taxes
25
27
Net income
28
Fixed asset book value
in three years
29
30
31
32 Aftertax salvage value
Sell equipment
Taxes
33
34
35
Aftertax cash flow
36
37 Capital spending
Net working capital
39 OCF
38
40
Net cash flow
41
42
NPV
43
Sheet1
...
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