Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,670,000 in annual sales, with costs of $1,670,000. The project requires an initial investment in net working capital of $184,000, and the fixed asset will have a market value of $219,000 at the end of the project. Assume that the tax rate is 22 percent and the required return on the project is 12 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
icon
Related questions
Question

Raghubhai 

Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000.
The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,670,000 in
annual sales, with costs of $1,670,000. The project requires an initial investment in net working capital of $184,000, and the fixed asset
will have a market value of $219,000 at the end of the project. Assume that the tax rate is 22 percent and the required return on the
project is 12 percent.
a. What are the net cash flows of the project each year?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answers to the nearest whole number, e.g., 32.
b. What is the NPV of the project?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
a. Year 0 cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
b. NPV
Transcribed Image Text:Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,670,000 in annual sales, with costs of $1,670,000. The project requires an initial investment in net working capital of $184,000, and the fixed asset will have a market value of $219,000 at the end of the project. Assume that the tax rate is 22 percent and the required return on the project is 12 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning