1. CMT Inc., is considering an expansion project that requires an initial fixed asset investment of $3.6 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project also requires an initial investment in net working capital (NWC) of $360,000. The project is estimated to generate $3,000,000 in annual sales, with costs of $1,440,000. Suppose the tax rate is 30 percent and the required return is 8 percent.

1. Determine the cash flows in the table. (11 marks)

	Year 0	Year 1	Year 2	Year 3
Operating cash flow
Change in NWC
Net capital spending
Total project cash flow

2. What is the projects NPV? Should the expansion project be accepted? Explain. (4 marks)