Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Esfandairi Enterprises is considering a new 3-year expansion project that requires an
initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS
class. (MACRS schedule) The project is estimated to generate $1,790,000 in annual
sales, with costs of $684,000. The project requires an initial investment in net working
capital of $410,000, and the fixed asset will have a market value of $420,000 at the end
of the project.
a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2?
Year 3? (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,
rounded to two decimal places, e.g., 1,234,567.89.)
b. If the required return is 12 percent, what is the project's NPV? (Do not round
intermediate calculations and enter your answer in dollars, not millions of dollars,
rounded to two decimal places, e.g., 1,234,567.89.)
a. Year 0 cash flow
a. Year 1 cash flow.
a. Year 2 cash flow
a. Year 3 cash flow
b. NPV
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Transcribed Image Text:Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS class. (MACRS schedule) The project is estimated to generate $1,790,000 in annual sales, with costs of $684,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (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, rounded to two decimal places, e.g., 1,234,567.89.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) a. Year 0 cash flow a. Year 1 cash flow. a. Year 2 cash flow a. Year 3 cash flow b. NPV
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