8.Quad Enterprises is considering a new three-year expansion project that requir

Question

8.Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2283284 in annual sales, with costs of $767934. The tax rate is 34 percent and the required return on the project is 13 percent. What is the project’s NPV? (Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Explanation / Answer

The NPV of the project is caluclated as follows:

The NPV is $823,416

Year 0 1 2 3 Intial Investment 2100000 Sales 2283284.00 2283284.00 2283284.00 Costs 767934.00 767934.00 767934.00 Depreciation 700000.00 700000.00 700000.00 Profit Before Tax 815350.00 815350.00 815350.00 Tax at 34% 277219.00 277219.00 277219.00 Net Profit 538131.00 538131.00 538131.00 Add Back Depreciation 700000.00 700000.00 700000.00 Net Operating cash flow 1238131.00 1238131.00 1238131.00 Discount factor at 13% 0.88495575 0.7831467 0.6930502 PV -2100000 1095691.15 969638.19 858086.89 NPV 823416.23

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