Summer Tyme, Inc. is considering a new three-year expansion project that require

Question

Summer Tyme, Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million, after which time it will be worthless. The project is estimated to generate $2,650,000 annual sales, with costs of $840,000. The tax rate is 35%.The required return is 12%. Suppose the project requires an initial investment in net working capital of $300,000 and the fixed asset will have a market value of $210,000 at the end of the project. What is project's net cash flow for year 0, year 1, year 2, and year 3?
Show how to solve using Excel functions NPV and/or IRR

Explanation / Answer

Excel Function for NPV and / or IRR

For NPV = Intial Investment + NPV(Rate if Return, Values)

For IRR = (Value, Guess)

Yr Sales Expense Depreciation Net Less Tax@ 35% After Tax Profit Net Cash Flow DF@ 12% DCF 0 -4200000 -4200000 -4200000 1 -4200000 1 2650000 -840000 -1300000 510000 -178500 331500 1631500 0.892857 1456696 2 2650000 -840000 -1300000 510000 -178500 331500 1631500 0.797194 1300622 3 2650000 -840000 -1300000 510000 -178500 331500 1631500 0.71178 1161269 -281412

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