1. Primacy is considering a new 4-year expansion project that requires an initial investment of $2,000,000. The fixed asset will be depreciated straight line to zero over its 4-year tax life, after which time it will be worthless. The project is estimated to generate $1,900,000 in annual sales with annual costs of $900,000. If the tax rate is 34%, what is the operating cash flow for the project? (OCF = $830,000)

a. suppose the required rate of return is 15%. Also assume no changes in net working capital and no additional capital spending is needed, i.e., operating cash flow is equal to the incremental Cash Flow From Assets (CFFA) for the expansion project. What is the projects NPV? What is the projects IRR?

b. Your manager has asked you to perform a sensitivity analysis. What parameter might you change? What might your sensitivity analysis show?

c. Your manager has asked you to perform a scenario analysis. How would this differ from a sensitivity analyses. What might your scenario analysis show?