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 $2.268 million. The fixed asset falls into the 3-year MACRS class (MACRS Table). The project is estimated to generate $2,016,000 in annual sales, with costs of $806,400. The tax rate is 33 percent and the required return is 18 percent. The project requires an initial investment in net working capital of $252,000 and the fixed asset will have a market value of $176,400 at the end of the project.

What is the net cash flow for Years 0-4?

What is the NPV for the project?

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.268 million. The fixed asset falls into the 3-year MACRS class (MACRS Table). The project is estimated to generate $2,016,000 in annual sales, with costs of $806,400. The tax rate is 33 percent and the required return is 18 percent. The project requires an initial investment in net working capital of $252,000 and the fixed asset will have a market value of $176,400 at the end of the project.

What is the net cash flow for Years 0-4?

What is the NPV for the project?

Explanation / Answer

year 0 1 2 3 4 inv -2520000 OCF 1209600 1209600 1209600 depreciation 755924.4 1009260 514382.4 CF aft dep 453675.6 200340 695217.6 CF aftr tax 303962.7 134227.8 465795.8 net cs flow 1059887 1143488 980178.2 salvage 176400 net 1059887 1143488 1156578 PV 898209.4 821235.1 703929.2 NPV -96626.3

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