Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. 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 $3,070,000 in annual sales, with costs of $2,090,000. Assume the tax rate is 24 percent and the required return on the project is 11 percent. What is the project’s NPV?

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

To calculate the Net Present Value (NPV) of the project, we follow these steps:

1. **Calculate Annual Depreciation**:
   \[
   \text{Depreciation} = \frac{\text{Initial Investment}}{\text{Life}} = \frac{2,300,000}{3} = 766,666.67
   \]

2. **Calculate Annual Earnings Before Tax (EBT)**:
   \[
   \text{EBT} = \text{Sales} - \text{Costs} - \text{Depreciation}
   \]
   \[
   \text{EBT} = 3,070,000 - 2,090,000 - 766,666.67 = 213,333.33
   \]

3. **Calculate Taxes**:
   \[
   \text{Taxes} = \text{EBT} \times \text{Tax Rate} = 213,333.33 \times 0.24 = 51,200
   \]

4. **Calculate Annual Net Income**:
   \[
   \text{Net Income} = \text{EBT} - \text{Taxes} = 213,333.33 - 51,200 = 162,133.33
   \]

5. **Calculate Annual Cash Flow**:
   \[
   \text{Cash Flow} = \text{Net Income} + \text{Depreciation} = 162,133.33 + 766,666.67 = 928,800
   \]

6. **Calculate NPV**:
   The NPV formula is:
   \[
   \text{NPV} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^t} - C_0
   \]
   Where $ C_t $ is the cash flow at time $ t $, $ r $ is the discount rate, and $ C_0 $ is the initial investment.

   - Cash Flows for 3 years: $928,800 each year
   - Discount Rate: 11% or 0.11
   - Initial Investment: $2,300,000

   Now we calculate each cash flow's present value:
   \[
   \text{PV} = \frac{928,800}{(1+0.11)^1} + \frac{928,800}{(1+0.11)^2} + \frac{928,800}{(1+0.11)^3}
   \]

   - Year 1:
   \[
   \text{PV}_1 = \frac{928,800}{1.11} = 835,135.14
   \]

   - Year 2:
   \[
   \text{PV}_2 = \frac{928,800}{(1.11)^2} = \frac{928,800}{1.2321} = 754,780.77
   \]

   - Year 3:
   \[
   \text{PV}_3 = \frac{928,800}{(1.11)^3} = \frac{928,800}{1.3676} = 679,346.03
   \]

   Now summing the present values:
   \[
   \text{Total PV} = 835,135.14 + 754,780.77 + 679,346.03 = 2,269,261.94
   \]

   Finally, calculate the NPV:
   \[
   \text{NPV} = \text{Total PV} - \text{Initial Investment} = 2,269,261.94 - 2,300,000 = -30,738.06
   \]

**Final Answer:**
\[
\text{NPV} = -30,738.06
\]

Would you like to know more about any part of this calculation, or do you have any questions? Here are some related questions:

1. What are the implications of a negative NPV for this project?
2. How would changing the tax rate affect the NPV?
3. What other methods can be used to evaluate this investment?
4. How would different depreciation methods impact the cash flows?
5. What are the risks associated with this project? 

**Tip:** Always consider the sensitivity of NPV to changes in key assumptions, like sales, costs, and discount rates.

Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. 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 $3,070,000 in annual sales, with costs of $2,090,000. Assume the tax rate is 24 percent and the required return on the project is 11 percent. What is the project’s NPV?

Explore the step-by-step calculation of the Net Present Value (NPV) for Esfandairi Enterprises' three-year expansion project. Key figures include an initial investment of $2,300,000, annual sales of $3,070,000, costs of $2,090,000, and a tax rate of 24%. The calculated NPV is -30,738.06, indicating financial implications.

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