Question
AAA Corp. is reviewing a new three-year project requiring an initial fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line to
AAA Corp. is reviewing a new three-year project requiring an initial fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line to zero over the investment horizon. The project is estimated to generate $2,100,000 in annual sales, with costs of $1,100,000. The current marginal tax rate is 30% and the required rate of return is 10%. You need to display your cash flow model by manually or using the Excel program that must be submitted separately in answering the following questions. (a) Find the projects annual operating cash flow. (10%) (b) The projects initial investment in net working capital is $150,000, unchanged during the project, and the fixed asset will have a market value of $170,000 at the end of the project. Find the projects annual free cash flow from Year 0 to Year3. (10%) (c) Find the projects net present value. (5%)
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