Question
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset qualifies
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project. a. If the tax rate is 22 percent, what is the projects Year 1 net cash flow? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. If the required return is 16 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.)
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