Question

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?

Answer 1

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

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