AAA Corp. is reviewing a new three-year project requiring an
initial fixed asset investment of $2.1 million. The fixed asset
will be depreciated straight-line to zero over the investment
horizon. The project is estimated to generate $2,100,000 in annual
sales, with costs of $1,100,000. The current marginal tax rate is
30% and the required rate of return is 10%.
You need to display your cash flow model by manually or using the
Excel program that must be submitted separately in answering the
following questions.
(a) Find the project’s annual operating cash flow. (10%)
(b) The project’s initial investment in net working capital is
$150,000, unchanged during the project, and the fixed asset will
have a market value of $170,000 at the end of the project. Find the
project’s annual free cash flow from Year 0 to Year3. (10%)
(c) Find the project’s net present value. (5%)
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