Question

Halloween Costumes Unlimited is considering a new 3-year store expansion project that requires an initial fixed asset investment of $3.7 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $285,600 after 3 years. The project requires an initial investment in net working capital of $408,000. The project is estimated to generate $3,264,000 in annual sales, with costs of $1,305,600. The tax rate is 35 percent and the required return on the project is 14 percent

Required:
(a)	What is the project's year 0 net cash flow?
	(Click to select)  -1,619,354  -3,902,600  -1,534,125  -3,697,200  -4,108,000

   

(b)	What is the project's year 1 net cash flow?
	(Click to select)  1,789,813  1,704,584  1,619,354  1,534,125  1,875,042

  

(c)	What is the project's year 2 net cash flow?
	(Click to select)  1,789,813  1,534,125  1,756,158  1,848,588  1,941,017

  

(d)	What is the project's year 3 net cash flow?
	(Click to select)  2,262,066  2,154,349  1,938,914  2,046,632  1,789,813

  

(e)	What is the NPV?
	(Click to select)  8,065,516  263,800.95  276,991  250,611  206,341

Answer 1

D52 =3700000*0.3333 A B D E F Н J K L M N n Depreciatio Net After-tax Working Total cash PVIF@ 50 Year Revenue Costs PBT Tax@35% income Depreciation OCF capital Investment flows 14% Present value 51 0 $ (408,000) $ (3,700,000) -$4,108,000 1.000 $ (4,108,000.00) 52 1 $ 3,264,000 $ 1,305,600 $ 1,233,210 $ 725,190 $ 253,817 $ 471,374 $ 1,233,210 $ 1,704,584 $ $1,704,584 0.877 $ 1,495,248.68 53 2 $ 3,264,000 $ 1,305,600 $ 1,644,650 $ 313,750 $ 109,813 $ 203,938 $ 1,644,650 $ 1,848,588 $ $1,848,588 0.769 $ 1,422,428.05 54 3 $3,264,000 $ 1,305,600 $ 547,970 $ 1,410,430 $ 493,651 $ 916,780 $ 547,970 $ 1,464,750 $ 408,000 $ 281,600 $2,154,349 0.675 $ 1,454,124.21 55 56 Net present value $ 263,800.95 57 Asset cost $ 3,700,000 58 Less: Depreciation charged $ 3,425,830 59 WDV at the time of sale $ 274,170 60 Sale value of machine $ 285,600 61 Profit/(Loss) on sale $ 11,430 62 Less: Tax @ 35% $ 4,001 63 After tax cash salvage value $ 281,600 64 65 Net cash flow Year 0 -$4,108,000 66 Net cash flow Year 1 $ 1,704,584 67 Net cash flow Year 2 $ 1,848,588 68 Net cash flow Year 3 $ 2,154,349 $ 263,800.95 69 NPV

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