Esfandairi Enterprises is considering a new three-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 three-year tax life. The project is estimated to generate $1.645 million in annual sales, with costs of $610,000. The tax rate is 21 percent and the required return is 12 percent. Suppose the project requires an initial investment in net working capital of $250,000 and the fixed asset will have a market value of $180,000 at the end of the project. What is the project's year 0, year 1, year 2, year 3 net cash flow? Year 1? What is the NPV?

Asset investment $2,180,000

Estimated annual sales $1,645,000

Costs $610,000

Tax rate 21%

Required return 12%

Project and asset live 3

Initial investment in NWC $250,000

Fixed asset value at end $180,000

My Solution:

Aftertax salvage value

Sell equipment $180,000

Taxes (37,800)

Aftertax salvage value $142,200

Connect says I have the annual depreciation amounts incorrect. I calculated $726,667 in Years 1-3. Connect also says I have Yr 1 cash flow incorrect. I calculated it to be $970,250. Could you please help me? Please see my solution below! I am stumped...unless Connect doesn't like the formula I used?

Year 0 Year 1 Year 2 Year 3

Sales $1,645,000 $1,645,000 $1,645,000

Costs $610,000 $610,000 $610,000

Depreciation 726,667 726,667 726,667

EBT $308,333 $308,333 $308,333

Taxes 64,750 64,750 64,750

Net income $243,583 $243,583 $243,583

Capital spending ($2,180,000) $142,200

Net working capital ($250,000) $250,000

OCF $970,250 $970,250 970,250

Total cash flow ($2,430,000) $970,250 $970,250 1,362,450

NPV $179,537