Lab10: Making Capital Investment Decisions
10
2
points
Chauhan Enterprises is considering a new three-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 three-year tax life. The project is estimated to gene generate $1,780,000 in
annual sales, with costs of $690,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset
will have a market value of $390,000 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?
Note: 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?
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
-2,760,000
1,018,000
Year 2 cash flow
$ 1,018,000
Year 3 cash flow
1,704,400
b. NPV
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