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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 $4.968 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 $386,400. The project requires an initial investment in net working capital of $552,000. The project is estimated to generate $4,416,000 in annual sales, with costs of $1,766,400. The tax rate is 24 percent and the required return on the project is 11 percent. |
what is projects year 0 net cashflow?
whats projects year 1 net cashflow?
whats projects year 2 net cashflow?
whats projects year 3 net cashflow?
what is npv?
Solutions
Expert Solution
| Particulars | Year 0 | Year 1 | Year 2 | Year 3 |
| Annual sales | - | 4,416,000 | 4,416,000 | 4,416,000 |
| Less: Costs | - | 1,766,400 | 1,766,400 | 1,766,400 |
| Less: Depreciation | - | 1,656,000 | 1,656,000 | 1,656,000 |
| Earnings before tax | - | 993,600 | 993,600 | 993,600 |
| Less: Taxes at 24% | - | 238,464 | 238,464 | 238,464 |
| Net Income | - | 755,136 | 755,136 | 755,136 |
| Add back Depreciation | - | 1,656,000 | 1,656,000 | 1,656,000 |
| Cash flow form operations | - | 2,411,136 | 2,411,136 | 2,411,136 |
| Initail investment in asset | -$4,968,000 | - | - | - |
| Net working capital | -$552,000 | - | - | 552,000 |
| After tax market value of asset | - | - | - | 293,664 |
| Net cash flow | -$5,520,000 | 2,411,136 | 2,411,136 | 3,256,800 |
| Required return | 11% | |||
| NPV | 990,470.75 |
Excel formulas:
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