Chauhan Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $1.96 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1.445 million in annual sales, with costs of $580,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. If the required return is 12 percent, what is the project's NPV? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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Chauhan Enterprises is considering a
new three-year expansion project that
requires an initial fixed asset investment
of $1.96 million. The fixed asset qualifies
for 100 percent bonus depreciation in
the first year. The project is estimated
to generate $1.445 million in annual
sales, with costs of $580,000. The
project requires an initial investment in
net working capital of $250,000, and the
fixed asset will have a market value of
$180,000 at the end of the project. The
tax rate is 21 percent.
What is the project's Year 0 net cash flow?
Year 1? Year 2? Year 3?
Note: A negative answer should be
indicated by a minus sign. Do not round
intermediate calculations and enter your
answers in dollars, not millions of dollars,
e.g., 1,234,567.
If the required return is 12 percent, what is
the project's NPV?
Note: Do not round intermediate
calculations and enter your answer in
dollars, not millions of dollars, rounded to
2 decimal places, e.g., 1,234,567.89.
Transcribed Image Text:Chauhan Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $1.96 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1.445 million in annual sales, with costs of $580,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. If the required return is 12 percent, what is the project's NPV? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.
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