Quad Enterprises is considering a new threeyear expansion pr

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.88 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,140,000 in annual sales, with costs of $823,000. The project requires an initial investment in net working capital of $360,000, and the fixed asset will have a market value of $240,000 at the end of the project. If the tax rate is 35 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (MACRS schedule) (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.)

Years Cash Flow

Year 0 $

Year 1 $

Year 2 $

Year 3 $

If the required return is 10 percent, what is the project\'s NPV? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

NPV $

Solution

Initial costs: Time NPV Fixed investment 288,000,000 0 Initial Work capi 360,000 0 Total fixed cost 288,360,000 0 288,360,000 Market value 240,000 3 Annual sales 2,140,000 Costs 823,000 Profit before tax 1,317,000 Tax 35% 460950 Profit after tax 856,050 Cash flow I year 856,050 778227.2727 II year 856,050 707479.3388 III Year(incl sales value) 1,096,050 823478.5875 Income NPV 2309185.199 Net Present value 286,050,815