Quad Enterprises is considering a new three-year expansion project that requires aninitial fixed asset investment of $2.3 million. The fixed asset qualifies for 100 percentbonus depreciation in the first year. The project is estimated to generate $1,720,000 inannual sales, with costs of $628,000. The project requires an initial investment in networking capital of $270,000, and the fixed asset will have a market value of $210,000 atthe end of the project.a. If the tax rate is 22 percent, what is the project's Year O net cash flow? Year 1? Year 2?Year 3? (A negative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers in dollars, not millions of dollars,e.g., 1,234,567.)b. If the required return is 10 percent, what is the project's NPV? (Do not roundintermediate calculations and enter your answers in dollars, not millions of dollars,rounded to two decimal places, e.g., 1,234,567.89.)Answer is complete but not entirely correct.Year O cash flowYear 1 cash flowYear 2 cash flowYear 3 cash flow-2,570,000a.992,727 8851,7601,015,560 8-110,334.58 82$NPVb.2$

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Asked Feb 20, 2020
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Quad Enterprises is considering a new three-year expansion project that requires an
initial fixed asset investment of $2.3 million. The fixed asset qualifies for 100 percent
bonus depreciation in the first year. The project is estimated to generate $1,720,000 in
annual sales, with costs of $628,000. The project requires an initial investment in net
working capital of $270,000, and the fixed asset will have a market value of $210,000 at
the end of the project.
a. If the tax rate is 22 percent, what is the project's Year O net cash flow? Year 1? Year 2?
Year 3? (A negative answer should be indicated by a minus sign. Do not round
intermediate calculations and enter your answers in dollars, not millions of dollars,
e.g., 1,234,567.)
b. If the required return is 10 percent, what is the project's NPV? (Do not round
intermediate calculations and enter your answers in dollars, not millions of dollars,
rounded to two decimal places, e.g., 1,234,567.89.)
Answer is complete but not entirely correct.
Year O cash flow
Year 1 cash flow
Year 2 cash flow
Year 3 cash flow
-2,570,000
a.
992,727 8
851,760
1,015,560 8
-110,334.58 8
2$
NPV
b.
2$
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Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.3 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1,720,000 in annual sales, with costs of $628,000. The project requires an initial investment in net working capital of $270,000, and the fixed asset will have a market value of $210,000 at the end of the project. a. If the tax rate is 22 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. Year O cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow -2,570,000 a. 992,727 8 851,760 1,015,560 8 -110,334.58 8 2$ NPV b. 2$

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Expert Answer

Step 1

a) Cash flow for Year 0 to Year 3 is calculated as below.

Note: Net working capital of $270,000 will be recovered at the end of Year 3.

After tax salvage value Is calculated as below:

Finance homework question answer, step 1, image 1

Step 2

Refer to the screen shot below for further calculation:

Finance homework question answer, step 2, image 1

 

Excel workings:

Finance homework question answer, step 2, image 2

 

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