Down Under Boomerang, Inc., is considering a new 3-year expansion project that r

Question

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.296 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $100,800 after 3 years. The project requires an initial investment in net working capital of $144,000. The project is estimated to generate $1,152,000 in annual sales, with costs of $460,800. The tax rate is 31 percent and the required return on the project is 16 percent.

The net cash flow in Year 0 is $

the net cash flow in Year 1 is $

the net cash flow in Year 2 is $

and the net cash flow in Year 3 is $ .

The NPV for this project is $ .

(Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.296 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $100,800 after 3 years. The project requires an initial investment in net working capital of $144,000. The project is estimated to generate $1,152,000 in annual sales, with costs of $460,800. The tax rate is 31 percent and the required return on the project is 16 percent.

The net cash flow in Year 0 is $

the net cash flow in Year 1 is $

the net cash flow in Year 2 is $

and the net cash flow in Year 3 is $ .

The NPV for this project is $ .

(Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

a. The Net Cash flow in Year 0 $ -14,40,000.00 Working: Initial Fixed Asset Investment $         12,96,000 Initial investment in net working capital $           1,44,000 The net Cash flows in Year 0 $       -14,40,000 b. The Net cash flow in year 1 $     6,10,834.61 Working: i. Depreciation Schedule Year Costs (1) Depreciation rate (2) Depreciation Expense (3) Accumulated Depreciation (4) Ending Book Value (5)= (1) -(4) 1 $   12,96,000 33.33% $           4,31,957 $   4,31,957 $ 8,64,043 2 $   12,96,000 44.45% $           5,76,072 $ 10,08,029 $ 2,87,971 3 $   12,96,000 14.81% $           1,91,938 $ 11,99,966 $     96,034 ii. Annual Sales $         11,52,000 Annual Cost $          -4,60,800 Depreciation Expense $          -4,31,957 Profit Before Tax $           2,59,243 Tax Expense $             -80,365 Net Income $           1,78,878 Depreciation Expense $           4,31,957 Annual Cash flow $           6,10,835 c. The Net cash flow in Year 2 $     6,10,834.61 d. Net Cash fllow in Year 3 $     8,54,157.02 Working: i. Sale Proceeds a $           1,00,800 Book Value b $               96,034 profit on sale c=a-b $                 4,766 Tax on Profit on sale d=c*31% $                 1,478 After tax sale proceeds a-d $               99,322 ii. Annual operating cash flow $           6,10,835 After Tax Sale of Fixed Assets $               99,322 Release of workig capital $           1,44,000 Net Cash flow $           8,54,157 e. The NPV for this project is $         87,753.43 Working: Year Cash flow Discount factor Present Value 0 $ -14,40,000          1.0000 $ -14,40,000.00 1 $     6,10,835          0.8621 $     5,26,581.56 2 $     6,10,835          0.7432 $     4,53,949.62 3 $     8,54,157          0.6407 $     5,47,222.25 Net Present value $         87,753.43

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