Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.34 million. ?

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.34 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 $1,740,000 in annual sales, with costs of $650,000. The tax rate is 21 percent and the required return on the project is 11 percent. What is the project’s NPV?

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  • Bryce
    Lv 7
    3 weeks ago

    I will assume $650,000 in annual costs.

    annual net income=1,740,000 - 650,000= 1,090,000

    1,090,000*0.79= 861,100

    annual depreciation= 2,340,000/3= 780,000

    net income - depreciation= 861,000 - 780,000= 81,000

    NPV= 81,000/1.11 + 81,000/1.11^2 + 81,000/1.11^3= $197,940.89

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