Problem 10-11 Calculating Project Cash Flow from Assets [LO1] Quad Enterprises i
ID: 2745053 • Letter: P
Question
Problem 10-11 Calculating Project Cash Flow from Assets [LO1]
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000. The project requires an initial investment in net working capital of $310,000, and the fixed asset will have a market value of $215,000 at the end of the project. If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.)
Years
Cash Flow
Year 0
$ -3040000
Year 1
$ 1186472.70
Year 2
$ 1186472.70
Year 3
$
If the required return is 13 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
NPV
$
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000. The project requires an initial investment in net working capital of $310,000, and the fixed asset will have a market value of $215,000 at the end of the project. If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.)
Explanation / Answer
Years
PV factor at 13 %
Cash Flow
PV of Cash inflows
Year 1
0.8850
$ 1186472.70
1050028
Year 2
1.6681
$ 1186472.70
1979155
Year 3
2.3612
$ 1186472.70
2801499
Total cash inflows
5830683
Cash outflows
3040000
NPV
2790683
Tax @ 30%
837204.8
Total NPV
1953478
Years
PV factor at 13 %
Cash Flow
PV of Cash inflows
Year 1
0.8850
$ 1186472.70
1050028
Year 2
1.6681
$ 1186472.70
1979155
Year 3
2.3612
$ 1186472.70
2801499
Total cash inflows
5830683
Cash outflows
3040000
NPV
2790683
Tax @ 30%
837204.8
Total NPV
1953478
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