Johnson Inc. is considering a new fouryear expansion project that requires an initial fixed asset investment of $2.5 million. The fixed asset will be depreciated straightline to zero over its fouryear tax life, after which it will be worthless. The project is estimated to generate $2 million in annual sales, with costs of $800,000.

a) If the tax rate is 35 percent, what is the OCF for this project?

b) Suppose the required return on the project is 13 percent. What is the projects NPV?