Question
Looks like the year 3 and NPV are incorrect. Please help! Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an
Looks like the year 3 and NPV are incorrect. Please help!
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,060,000 in annual sales, with costs of $755,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $270,000 at the end of the project. If the tax rate is 35 percent, what is the projects Year 0 net cash flow? Year 1? Year 2? Year 3? (Enter your answers in dollars, not millions of dollars (e.g., 1,234,567). Negative amounts should be indicated by a minus sign.) |
Years | Cash Flow |
Year 0 | $ -2,920,000 -2,920,000 Correct |
Year 1 | $ 1,156,250.00 1,156,250.00 Correct |
Year 2 | $ 1,156,250.00 1,156,250.00 Correct |
Year 3 | $ 1,331,750.00 1,331,750.00 Incorrect |
If the required return is 13 percent, what is the project's NPV? |
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