Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,775,000 in annual sales, with costs of $685,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $375,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 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, e.g., 1,234,567.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,775,000 in annual sales, with costs of $685,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $375,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 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, e.g., 1,234,567.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
Related questions
Question
|
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,775,000 in annual sales, with costs of $685,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $375,000 at the end of the project. |
| a. | If the tax rate is 23 percent, what is the project’s Year 0 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, e.g., 1,234,567.) |
| b. |
If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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