Down Under Boomerang, Inc., is considering a new three-year expansion project th

Question

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,050,000 in annual sales, with costs of $745,000. The tax rate is 30 percent and the required return is 15 percent. The project requires an initial investment in net working capital of $270,000, and the fixed asset will have a market value of $275,000 at the end of the project.

What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3?

What is the NPV?

Explanation / Answer

Answer:

Answer: NPV:

Year 0 1 2 3 Intial investment -2610000 Net working capital -270000 Annual sales 2050000 2050000 2050000 Less: costs 745000 745000 745000 Less: Dep 870000 870000 870000 EBIT 435000 435000 435000 Less: tax @30% 130500 130500 130500 EAT 304500 304500 304500 Add: Dep 870000 870000 870000 Operating cash Flow 1174500 1174500 1174500 Release of working capital 270000 Salvage value 192500 Projects cash Flow -2880000 1174500 1174500 1637000

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.