sfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,755,000 in annual sales, with costs of $665,000. The project requires an initial investment in net working capital of $340,000, and the fixed asset will have a market value of $315,000 at the end of the project. a.If the tax rate is 24 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)b.If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

This is a capital budgeting problem. In problems like these we need to determine the cash flows for…

Answered: sfandairi Enterprises is considering a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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sfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,755,000 in annual sales, with costs of $665,000. The project requires an initial investment in net working capital of $340,000, and the fixed asset will have a market value of $315,000 at the end of the project.

a.	If the tax rate is 24 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
b.	If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

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