Question

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.3 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $100,800 after 3 years. The project requires an initial investment in net working capital of $144,000. The project is estimated to generate $1,152,000 in annual sales, with costs of $460,800. The tax rate is 25 percent and the required return on the project is 17 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

let me know if you need any clarification..

	year		0	1	2	3
A	Initial investment		(1,300,000)
B	Net working capital		-144000			144000
	Computation of operating cash flow
i	Sales			1,152,000	1,152,000	1,152,000
ii	Cost			460,800	460,800	460,800
iii	Depreciation rate			33.33%	44.45%	14.81%
iv	Depreciation amount			433290	577850	192530
v	Profit before tax			257,910	113,350	498,670
vi	Tax @ 25%			64477.5	28337.5	124667.5
vii	Profit after tax			193,433	85,013	374,003
C	Operating cash flow			626,723	662,863	566,533
D	Salvage value					99682.5
	=100800-(100800-1300000*7.41%)*(25%)
E=A+B+C+D	Net cash flow		(1,444,000)	626,723	662,863	810,215
F	PVIF @ 17%		1.0000	0.8547	0.7305	0.6244
G	present value		(1,444,000)	535,660	484,230	505,874	81,765
Ans
	Net cash flow in year 0		(1,444,000)
	Net cash flow in year 1		626,723
	Net cash flow in year 2		662,863
	Net cash flow in year 3		810,215
	NPV =		81,765