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Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,730,000 in annual sales, with costs of $640,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $240,000 at the end of the project.

a.

If the tax rate is 24 percent, what is the projects Year 0 net cash flow? Year 1? Year 2? Year 3?

b.

If the required return is 12 percent, what is the project's NPV?

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