$"$ii$.$ Calculating NWC:

Annual revenue: $10$ million

Cash: $10\%$ of $10$ million $=1$ million

Inventory: $5\%$ of $10$ million $=0\mathrm{.}5$ million

Accounts receivable: $20\%$ of $10$ million $=2$ million

Accounts payable: $5\%$ of $10$ million $=0\mathrm{.}5$ million

NWC $=$ Cash $+$ Inventory $+$ Accounts receivable $-$ Accounts payable

$=1$ million $+0\mathrm{.}5$ million $+2$ million $-0\mathrm{.}5$ million

$=3$ million

NWC remains constant each year, so the annual change is:

Year$0$ : $+3$ million $($initial investment$)$

Years $1-2$:$0($no change$)$

Year$3$ : $-3$ million $($release of NWC$)"$

"iii. Updating NPV calculation:

New annual depreciation: $\frac{9\text{m}\text{i}\text{l}\text{l}\text{i}\text{o}\text{n}-3\text{m}\text{i}\text{l}\text{l}\text{i}\text{o}\text{n}}{3\text{y}\text{e}\text{a}\text{r}\text{s}}=2$ million

New annual EBIT: $10$ million $-5$ million $-2$ million $=3$ million

New annual taxes: $3$ million $20\%=0\mathrm{.}6$ million

New annual after$-$tax income: $3$ million $-0\mathrm{.}6$ million $=2\mathrm{.}4$ million

New annual cash flow: $2.4$ million $+2$ million$($depreciation$)=4\mathrm{.}4$million

After$-$tax cash flow from asset sale:

Sale price: $4$ million

Book value: $3$ million

Taxable gain: $1$ million

Tax on gain: $1$ million $20\%=0\mathrm{.}2$ million

After$-$tax cash flow from sale: $4$ million $-0\mathrm{.}2$ million $=3\mathrm{.}8$ million

Updated NPV calculation:

$NPV=-9$ million $-3$ million$(initialNWC)+4\mathrm{.}4$ million $\frac{1-{1\mathrm{.}1}^{-3}}{0\mathrm{.}1}+\frac{3\mathrm{.}8\text{m}\text{i}\text{l}\text{l}\text{i}\text{o}\text{n}+3\text{m}\text{i}\text{l}\text{l}\text{i}\text{o}\text{n}}{{1\mathrm{.}1}^3}=2\mathrm{.}90$ million $($may be wrong$)$

Therefore, the updated NPV of the project is $2\mathrm{.}90$ million."

This is the working out provided by an expert on chegg. The inititial investment of the project is $9$million and it is over $3$ years. $20\%$ tax rate and $10\%$ cost of capital. The depreciation is changed to have selling price of $4$ million and book value of $3$ million instead of $0.$

I can get the annual cash flow of $4\mathrm{.}4$million and calculate the aftertax cash flow of the asset sale to be $3\mathrm{.}8$million. I understand where the $-9$million $+4\mathrm{.}4$million $*(1-(1\mathrm{.}1^-3)/0\mathrm{.}1)$ but don't understand how the sale of the asset has been implemented into to npv calculation.