Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2 million. The project is estimated to generate $3 million in annual sales, with costs of $1.5 million from year 1 to year 3. The project requires an initial investment in net working capital of $0.4 million and after the project you retrieve the investment in net working capital. The fixed asset will be sold at a market value of $1 million at the end of year 3. Tax rate is 35 percent. Assume the fixed asset has straight-line depreciation to zero over 3 years.

a. Calaculate cash flow from assets (free cash flow) of the three-year expansion project.

b. The annual discount rate is 10%. What's the NPV of the project? Should you take the project?