Question
In: Finance
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...
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Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.538 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 $197,400. The project requires an initial investment in net working capital of $282,000. The project is estimated to generate $2,256,000 in annual sales, with costs of $902,400. The tax rate is 22 percent and the required return on the project is 11 percent. |
(a)What is the project's Year 2 net cash flow?
(b)What is the project's Year 3 net cash flow?
(c)What is the NPV?
Solutions
Expert Solution
Cash flow from Investment in fixed asset in year = amount realized from sale of Fixed assets after tax
= 197,400 (1-0.22)
= 153,972
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