Question

In: Finance

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.292 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 $411,600. The project requires an initial investment in net working capital of $588,000. The project is estimated to generate $4,704,000 in annual sales, with costs of $1,881,600. The tax rate is 24 percent and the required return on the project is 11 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?

Solutions

Expert Solution

Initial Investment = $5,292,000
Useful Life = 3 years

Annual Depreciation = Initial Investment / Useful Life
Annual Depreciation = $5,292,000 / 3
Annual Depreciation = $1,764,000

Initial Investment in NWC = $588,000

Salvage Value = $411,600

After-tax Salvage Value = $411,600 * (1 - 0.24)
After-tax Salvage Value = $312,816

Annual Operating Cash Flow = (Sales - Costs) * (1 - tax) + tax * Depreciation
Annual Operating Cash Flow = ($4,704,000 - $1,881,600) * (1 - 0.24) + 0.24 * $1,764,000
Annual Operating Cash Flow = $2,822,400 * 0.76 + 0.24 * $1,764,000
Annual Operating Cash Flow = $2,568,384

Year 0:

Net Cash Flows = Initial Investment + Initial Investment in NWC
Net Cash Flows = -$5,292,000 - $588,000
Net Cash Flows = -$5,880,000

Year 1:

Net Cash Flows = Operating Cash Flow
Net Cash Flows = $2,568,384

Year 2:

Net Cash Flows = Operating Cash Flow
Net Cash Flows = $2,568,384

Year 3:

Net Cash Flows = Operating Cash Flow + NWC recovered + After-tax Salvage Value
Net Cash Flows = $2,568,384 + $588,000 + $312,816
Net Cash Flows = $3,469,200

Required return = 11%

NPV = -$5,880,000 + $2,568,384/1.11 + $2,568,384/1.11^2 + $3,469,200/1.11^3
NPV = $1,055,066.67


Related Solutions

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.0 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $310,800 after 3 years. The project requires an initial investment in net working capital of $444,000. The project is estimated to generate $3,552,000 in annual sales, with costs of $1,420,800. The tax rate is 22 percent and the required return on the project...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.944 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 $151,200. The project requires an initial investment in net working capital of $216,000. The project is estimated to generate $1,728,000 in annual sales, with costs of $691,200. The tax rate is 22 percent and the required return...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.2 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $247,800 after 3 years. The project requires an initial investment in net working capital of $354,000. The project is estimated to generate $2,832,000 in annual sales, with costs of $1,132,800. The tax rate is 22 percent and the required return on the project...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.59 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 $357,000. The project requires an initial investment in net working capital of $510,000. The project is estimated to generate $4,080,000 in annual sales, with costs of $1,632,000. The tax rate is 22 percent and the required return...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.1 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $315,000 after 3 years. The project requires an initial investment in net working capital of $450,000. The project is estimated to generate $3,600,000 in annual sales, with costs of $1,440,000. The tax rate is 22 percent and the required return on the project...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.13 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 $399,000. The project requires an initial investment in net working capital of $570,000. The project is estimated to generate $4,560,000 in annual sales, with costs of $1,824,000. The tax rate is 25 percent and the required return...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.16 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 $168,000. The project requires an initial investment in net working capital of $240,000. The project is estimated to generate $1,920,000 in annual sales, with costs of $768,000. The tax rate is 22 percent and the required return...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.536 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 $352,800. The project requires an initial investment in net working capital of $504,000. The project is estimated to generate $4,032,000 in annual sales, with costs of $1,612,800. The tax rate is 22 percent and the required return...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
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...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.564 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 $277,200. The project requires an initial investment in net working capital of $396,000. The project is estimated to generate $3,168,000 in annual sales, with costs of $1,267,200. The tax rate is 24 percent and the required return...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT