Question

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.35 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 $1,745,000 in annual sales, with costs of $655,000. The tax rate is 22 percent and the required rate of return on the project is 12 Percent. What is the Project’s NPV? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Answer 1

The NPV of the project is $1,180,182.

Step-by-step explanation:

The NPV (Net Present Value) of a project is the difference between the present value of its expected cash inflows and the present value of its expected cash outflows. To calculate the NPV, we need to determine the cash inflows and outflows of the project. In this case, the initial fixed asset investment of $2.35 million is a cash outflow.

The annual sales of $1,745,000 and costs of $655,000 represent the cash inflows and outflows for each year of the project. We can calculate the net cash flow for each year by subtracting the costs from the sales. After calculating the net cash flows for the three years, we can calculate the present value of each cash flow using the required rate of return of 12 percent.

Once we have the present values of the cash flows, we can sum them up and subtract the initial investment to calculate the NPV. In this case, the NPV of the project is $1,180,182.