Question
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.886 million. The fixed asset will be
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.886 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $457,800. The project requires an initial investment in net working capital of $654,000. The project is estimated to generate $5,232,000 in annual sales, with costs of $2,092,800. The tax rate is 31 percent and the required return on the project is 15 percent. What is the projects year 0 net cash flows? Year 1, 2 and 3? What is the NPV?
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