The Anderson Airlines Group is analyzing a project that has projected incremental sales of $1,600,000 per year and incremental costs of $980,000 per year. The project requires an initial upfront investment in net working capital (NWC) of $25,000. No other investments in NWC are anticipated. Fixed assets of $2,000,000 are needed and belong in a 20% CCA class. Assume that the asset class will remain open. The project has a life of five (5) years. At the end of the five years, the equipment has an estimated market value of $780,000. The company has a cost of capital of 12% and is in the 35% marginal tax bracket. Assume that NWC will be recovered at the end of the project and that the half-year rule is in effect.

1. What is the present value of the after-tax operating cash flow ignoring the impact of depreciation?

A) $1,409,787

B) $1,436,812

C) $1,452,725

D) $1,470,773

E) $1,487,282

2. Pretend that your answer to the previous question is exactly $1,500,000. What would be the NPV of the project?

A) $239,275

B) $249,024

C) $274,049

D) $287,779

E) $318,282