a)
Year 0 cash flow = -2,370,000 - 340,000
Year 0 cash flow = -2,710,000
Annual depreciation = 2,370,000 / 3 = 790,000
Year 1 cash flow = (Sales - costs - depreciation)(1 - tax) + depreciation
Year 1 cash flow = (1,755,000 - 665,000 - 790,000)(1 - 0.24) + 790,000
Year 1 cash flow = $1,018,000
Year 2 cash flow = $1,018,000
Non operating year 3 cash flow = Market value + NWC - tax(market value - book value)
Non operating year 3 cash flow = 315,000 + 340,000 - 0.24(315,000 - 0)
Non operating year 3 cash flow = 315,000 + 340,000 - 75,600
Non operating year 3 cash flow = 579,400
Year 3 cash flow = $579,400 + $1,018,000
Year 3 cash flow = $1,597,400
b)
NPV = -2,710,000 + 1,018,000 / (1 + 0.09)1 + 1,018,000 / (1 + 0.09)2 + 1,597,400 / (1 + 0.09)3
NPV = $314,261.08
Down Under Boomerang, Inc., is considering requires an initial fixed asset investment of $2.37 million. The fixed asset...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,780,000 in annual sales, with costs of $690,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $390,000 at the end of the project. a. If...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,810,000 in annual sales, with costs of $720,000. The project requires an initial investment in net working capital of $450,000, and the fixed asset will have a market value of $480,000 at the end of the project. a. If...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,750,000 in annual sales, with costs of $660,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. a. If...
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 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 $1,980,000 in annual sales, with costs of $675,000. The project requires an initial investment in net working capital of $200,000, and the fixed asset will have a market value of $310,000 at...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,725,000 in annual sales, with costs of $635,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $225,000 at the end of the project. a. If...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.33 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $1,735,000 in annual sales, with costs of $640,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $255,000 at the end of the project. a. If the tax rate is 25...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,715,000 in annual sales, with costs of $625,000. The project requires an initial investment in net working capital of $260,000, and the fixed asset will have a market value of $195,000 at the end of the project. a. If...
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,...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,770,000 in annual sales, with costs of $668,000. The project requires an initial investment in net working capital of $370,000, and the fixed asset will have a market value of $360,000 at the end of the project. a. If the tax...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3- year MACRS class (MACRS schedule). The project is estimated to generate $1,715,000 in annual sales, with costs of $624,000. The project requires an initial investment in net working capital of $260,000, and the fixed asset will have a market value of $195,000 at the end of the project. a. If the tax...