Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment (equipment purchase) of $1,860,000. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it can be sold for $175,000. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. The project also requires an initial investment in net working capital (inventory) of $150,000. Assume a 35% tax rate and a 10% cost of capital.

a) What are the net cash flows for all years including year 0?

b) What are the operating cash flows for years 1, 2, and 3?

c) Show all relevant cash flows on a timeline? Calculate NPV. Is the project acceptable?