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The Smith & Warner Company is considering an expansion of its production facilities which will permit the firm to build and sell a new line
- The Smith & Warner Company is considering an expansion of its production facilities which will permit the firm to build and sell a new line of cell phones. The project requires a $10,000,000 capital investment and is expected to have a three-year economic life. Other relevant information is :
- At the end of the project, the equipment can be sold for $300,000.
- The firms WACC is estimated at 8%.
- Incremental sales are projected to be $12,000,000 per year.
- Annual costs(excluding depreciation) are estimated to be $3,000,000
- The project requires a $2,000,000 initial investment in net operating working capital.
- The expected tax rate is 33%.
The MACRS depreciation schedule in the list below will be used:
- Year 1 = 0.4445
- Year 2 = 0.3333
- Year 3 = 0.1481
- Year 4 = 0.0741
Calculate and show the project cash flows for years 0 through 3.
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