Question

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 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?

Answer 1

Based on the given data, pls find below steps, workings and answers;

What is the project's year 0 net cash flow? Cash Outflow of $ 4550000

What is the project's year 1 net cash flow? Cash Inflow of $ 1985437

What is the project's year 2 net cash flow? Cash Outflow of $ 2085739

What is the project's year 3 net cash flow? Cash Outflow of $ 2592114

What is the NPV? NPV is $ 826845.89

Computation of Net Present Value (NPV) based on the Discounted Cash flows; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

Next, the cashflows need to be multiplied with the respective years' discounting factor, to arrive at the discounting cash flows;

The total of all the discounted cash flows is equal to its respective Project NPV of the Cash Flows;