Question
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1.4 million. The fixed asset falls
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1.4 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $1,120,000 in annual sales, with costs of $480,000. The project requires an initial investment in net working capital of $285,000, and the fixed asset will have a market value of $225,000 at the end of the project. The tax rate is 35 percent and the required return is 12 percent. What is the projects Year 1 net cash flow? Year 2? Year 3?
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