Question
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.27 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 $2.27 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,800,000 in annual sales, with costs of $710,000. The project requires an initial investment in net working capital of $430,000, and the fixed asset will have a market value of $450,000 at the end of the project. |
a. | If the tax rate is 23 percent, what is the projects Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) |
b. | If the required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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