Question
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $6.264 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 $6.264 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 $487,200. The project requires an initial investment in net working capital of $696,000. The project is estimated to generate $5,568,000 in annual sales, with costs of $2,227,200. The tax rate is 32 percent and the required return on the project is 12 percent. Required: (a) What is the project's year 0 net cash flow? b) What is the project's year 1 net cash flow? What is the project's year 2 net cash flow? What is the project's year 3 net cash flow?
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