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Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] 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 $3,070,000 in annual sales, with costs of $2,090,000. The project requires an initial investment in net working capital of $178,000, and the fixed asset will have a market value of $213,000 at the end of the project. Assume that the tax rate is 24 percent and the required return on the project is 11 percent. a. What are the net cash flows of the project each year? d your Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round y 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 D 13

Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] 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 $3,070,000 in annual sales, with costs of $2,090,000. The project requires an initial investment in net working capital of $178,000, and the fixed asset will have a market value of $213,000 at the end of the project. Assume that the tax rate is 24 percent and the required return on the project is 11 percent. a. What are the net cash flows of the project each year? d your Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round y 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 D 13

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] 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 $3,070,000 in annual sales, with costs of $2,090,000. The project requires an initial investment in net working capital of $178,000, and the fixed asset will have a market value of $213,000 at the end of the project. Assume that the tax rate is 24 percent and the required return on the project is 11 percent. a. What are the net cash flows of the project each year? d your Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round y 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 D 13
Transcribed Image Text:Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] 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 $3,070,000 in annual sales, with costs of $2,090,000. The project requires an initial investment in net working capital of $178,000, and the fixed asset will have a market value of $213,000 at the end of the project. Assume that the tax rate is 24 percent and the required return on the project is 11 percent. a. What are the net cash flows of the project each year? d your Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round y 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 D 13
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