Question

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,110,000 in annual sales, with costs of $799,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $225,000 at the end of the project. If the tax rate is 35 percent, what is the project’s Year 1 net cash flow? Year 2? Year 3? Table 8.3. (Enter your answers in dollars, not millions of dollars. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 1,234,567.89.) Cash Flow Year 0 $ Year 1 $ Year 2 $ Year 3 $ If the required return is 12 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $

Answer 1

D52 fic =2790000*0.3333 ДА B с D E F G H K L M N n Depreciatio 50 Year Revenue Costs n 51 0 52 1 $ 2,110,000 $ 790,000 $ 929,907 | $ 53 2 $ 2,110,000 $ 790,000 $1,240,155$ 54 3 $ 2,110,000 $ 790,000 $ 413,199 $ 55 Depreciatio After-tax Working PVIF@ PBT Tax@35% Net income OCF capital Investment CFFA 12% $ (330,000) $ (2,790,000) $ (3,120,000) 1.000 $ 390,093 $ 136,533 $ 253,560 $ 929,907 $ 1,183,467$ $ 1,183,467 0.893 $ 79,845 $ 27,946 $ 51,899 $ 1,240,155 $1,292,054 $ $ 1,292,054 0.7971 $ 906,801 $ 317,380 $589,421 $ 413,199 $ 1,002,620 $ 330,000 $ 218,609$ 1,551,228 0.712 $ Present value (3,120,000.00) 1,056,667.37 1,030,017.74 1,104,133.66 Net present value $ 70,818.77 $ 56 57 58 59 60 61 62 63 64 Asset cost Less: Depreciation charged WDV at the time of sale Sale value of machine Profit/(Loss) on sale Less: Tax @ 35% After tax cash salvage value $ 2,790,000 $ 2,583,261 206,739 $ 225,000 18,261 $ 6,391 $ 218,609 $ 65 Net cash flow Year O 66 Net cash flow Year 1 67 Net cash flow Year 2 68 Net cash flow Year 3 -$3,120,000 $1,183,467.45 $1,292,054.25 $1,551,228.30 $ 70,818.77 69 NPV

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