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 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, 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.) a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow b. NPV -2,790,000
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 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, 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.) a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow b. NPV -2,790,000
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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Transcribed Image Text: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 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,
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.)
a. Year 0 cash flow
a. Year 1 cash flow
a. Year 2 cash flow
a. Year 3 cash flow
b. NPV
$
-2,790,000
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