Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year life and thereafter, it will be worthless. The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000.

1. If the tax rate is 35 percent, what is the OCF per year for this project?_________

2. Following question #1, suppose the project requires an initial investment in net working capital of $300,000, and maintains at this level until the end of year 2. And, this net working capital will be recovered at the end of the project. What are the project's incremental free cash flows? Year 0 Year 1 Year 2 Year 3 A.-2,700,000 1,208,750 1,208,750 1,508,750 B. -2,700,000 1,375,000 1,375,000 1,675,000 C. -3,000,000 1,375,000 1,375,000 1,375,000 D. -3,000,000 1,208,750 1,208,750 1,508,750

3. Following question #2, suppose the cost of capital is 12%. What is the NPV of this expansion project? _______