Question

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $231,000. The project requires an initial investment in net working capital of $330,000. The project is estimated to generate $2,640,000 in annual sales, with costs of $1,056,000. The tax rate is 24 percent and the required return on the project is 17 percent. What is the project's Year 0 net cash flow? What is the project's Year 1 net cash flow? What is the project's Year 2 net cash flow? What is the project's Year 3 net cash flow? What is the NPV?

Answer 1

Cash flow
Year 0		$   (2,970,000.00)
Year 1		$    1,415,040.00
Year 2		$    1,415,040.00
Year 3		$    1,920,600.00

Ref	Particulars		Year 1	Year 2	Year 3
a	Operating cash flow		$    1,584,000.00	$         1,584,000.00	$ 1,584,000.00
	Salvage value				$     231,000.00
b	Depreciation		$      (880,000.00)	$           (880,000.00)	$    (880,000.00)
c=a-b	Profit before tax		$        704,000.00	$            704,000.00	$     935,000.00
	Profit after tax		$        535,040.00	$            535,040.00	$     710,600.00
	Add depreciation		$        880,000.00	$            880,000.00	$     880,000.00
	Add: working capital		$                        -	$                             -	$     330,000.00
	Free cash flow		$    1,415,040.00	$         1,415,040.00	$ 1,920,600.00
d	Present value factor@ 17.0%		0.854700855	0.730513551	0.624370556
e=c*d	Present value of annual cashflows		$    1,209,435.90	$         1,033,705.90	$ 1,199,166.09
	Total present value of annual cash inflows		$    3,442,307.88
	Investment:
	Equipment		$   (2,640,000.00)
	Working capital		$      (330,000.00)
	NPV		$        472,307.88

NPV is 472,307.88

plesae rate.