Esfandairi Enterprises is considering a new 3-year expansion project that requires aninitial fixed asset investment of $2.29 million. The fixed asset will be depreciatedstraight-line to zero over its 3-year tax life. The project is estimated to generate$1,715,000 in annual sales, with costs of $625,000. The project requires an initialinvestment in net working capital of $260,000, and the fixed asset will have a marketvalue of $195,000 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? (Do not round intermediate calculations and enter your answers in dollars,not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by aminus sign.)b. If the required return is 9 percent, what is the project's NPV? (Do not roundintermediate calculations and enter your answer in dollars, not millions of dollars,rounded to 2 decimal places, e.g., 1,234,567.89.)a. Year 0 cash flowa. Year 1 cash flowa. Year 2 cash flowa. Year 3 cash flowb. NPV

When an investment is carried out intending to improve the operational facility of the company or to…

Answered: Esfandairi Enterprises is considering a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.7 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,630,000 in annual sales, with costs of $832,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 $ OCF2 $ OCF3 $
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,310,000. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1,770,000 in annual sales, with costs of $668,000. The project requires an initial investment in net working capital of $370,000, and the fixed asset will have a market value of $360,000 at the end of the project. If the tax rate is 22 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 round your answers to two decimal places, e.g., 32.16. If the required return is 12 percent, what is the project's NPV? Note: Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16.
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