Question

A) Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $3.01 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2062531 in annual sales, with costs of $819158. If the tax rate is 33 percent and the required return on the project is 11 percent, what is the project's NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

B)Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.6 million. The fixed asset will be depreciated straight-line over its three-year tax life, and the fixed asset will have a market value of $240861 at the end of the project. The project is estimated to generate $2030711 in annual sales, with costs of $868168. The project requires an initial investment in net working capital of $364334. If the tax rate is 34 percent and the required return on the project is 9 percent, what is the project's Year 0 net cash flow? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

C)

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $297260 at the end of the project. The project is estimated to generate $2043001 in annual sales, with costs of $843186. The project requires an initial investment in net working capital of $374861. If the tax rate is 35 percent and the required return on the project is 12 percent, what is the project's NPV?

(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Answer 1

A

Time line		0	1	2	3
Cost of new machine		-3010000
=Initial Investment outlay		-3010000
Sales			2062531	2062531	2062531
Profits	Sales-variable cost		1243373	1243373	1243373
-Depreciation	Cost of equipment/no. of years		-1003333	-1003333.3	-1003333
=Pretax cash flows			240039.67	240039.667	240039.67
-taxes	=(Pretax cash flows)*(1-tax)		160826.58	160826.577	160826.58
+Depreciation			1003333.3	1003333.33	1003333.3
=after tax operating cash flow			1164159.9	1164159.91	1164159.9
+Tax shield on salvage book value	=Salvage value * tax rate				0
=Terminal year after tax cash flows					0
Total Cash flow for the period		-3010000	1164159.9	1164159.91	1164159.9
Discount factor=	(1+discount rate)^corresponding period	1	1.11	1.2321	1.367631
Discounted CF=	Cashflow/discount factor	-3010000	1048792.7	944858.299	851223.69
NPV=	Sum of discounted CF=	-165125

B

Time line		0
Cost of new machine		-2600000
Initial working capital		-364334
=Initial Investment outlay		-2964334

C

Time line		0	1	2	3
Cost of new machine		-2670000
Initial working capital		-374861
=Initial Investment outlay		-3044861
Sales			2043001	2043001	2043001
Profits	Sales-variable cost		1199815	1199815	1199815
-Depreciation	Cost of equipment/no. of years		-890000	-890000	-890000
=Pretax cash flows			309815	309815	309815
-taxes	=(Pretax cash flows)*(1-tax)		201379.75	201379.75	201379.75
+Depreciation			890000	890000	890000
=after tax operating cash flow			1091379.8	1091379.75	1091379.8
reversal of working capital					374861
+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)				193219
+Tax shield on salvage book value	=Salvage value * tax rate				0
=Terminal year after tax cash flows					568080
Total Cash flow for the period		-3044861	1091379.8	1091379.75	1659459.8
Discount factor=	(1+discount rate)^corresponding period	1	1.12	1.2544	1.404928
Discounted CF=	Cashflow/discount factor	-3044861	974446.21	870041.255	1181170.7
NPV=	Sum of discounted CF=	-19203