17.5 points 1 Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an Initial fixed asset Investment of $2.38 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,805,000 in annual sales, with costs of $715,000. The project requires an Initial Investment in net working capital of $440,000, and the fixed asset will have a market value of $465,000 at the end of the project. a. If the tax rate is 24 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round Intermediate calculations and enter your answers In dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be Indicated by a minus sign.) b. If the required return is 11 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. a. Year 0 cash flow -2,820,000 Year 1 cash flow S 1.018.800 Year 2 cash flow S 1.018,800 Year 3 cash flow S 1,923,800 x b. NPV S 329,028.61
17.5 points 1 Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an Initial fixed asset Investment of $2.38 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,805,000 in annual sales, with costs of $715,000. The project requires an Initial Investment in net working capital of $440,000, and the fixed asset will have a market value of $465,000 at the end of the project. a. If the tax rate is 24 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round Intermediate calculations and enter your answers In dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be Indicated by a minus sign.) b. If the required return is 11 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. a. Year 0 cash flow -2,820,000 Year 1 cash flow S 1.018.800 Year 2 cash flow S 1.018,800 Year 3 cash flow S 1,923,800 x b. NPV S 329,028.61
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:17.5
points
1
Down Under Boomerang, Inc., is considering a new 3-year expansion project that
requires an Initial fixed asset Investment of $2.38 million. The fixed asset will be
depreciated straight-line to zero over its 3-year tax life. The project is estimated to
generate $1,805,000 in annual sales, with costs of $715,000. The project requires an
Initial Investment in net working capital of $440,000, and the fixed asset will have a
market value of $465,000 at the end of the project.
a. If the tax rate is 24 percent, what is the project's Year O net cash flow? Year 1? Year 2?
Year 3? (Do not round Intermediate calculations and enter your answers In dollars,
not millions of dollars, e.g., 1,234,567. A negative answer should be Indicated by a
minus sign.)
b. If the required return is 11 percent, what is the project's NPV? (Do not round
Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
a.
Year 0 cash flow
-2,820,000
Year 1 cash flow
S
1.018.800
Year 2 cash flow
S
1.018,800
Year 3 cash flow
S
1,923,800 x
b.
NPV
S
329,028.61
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