Down Under Boomerang Inc is considering a new threeyear expa

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,100,000 in annual sales, with costs of $795,000. The project requires an initial investment in net working capital of $320,000, and the fixed asset will have a market value of $220,000 at the end of the project. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
  

Cash Flow

Year 0

$

Year 1

$

Year 2

$

Year 3

$

If the required return is 12 percent, what is the project\'s NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV           $

Solution

Question - 1

what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3?

In the Year - 0 ...... we have Investment in the project = 2,760,000 and also working capital 320,000

So cash flow = - (2760000 + 320,000) = 3080,000

Year - 1, Year - 2 and Year - 3 ........... calculations are tabulated as under

Final answer to question - 1 ..............

Question - 2 ........... Calculation of NPV