Down Corporation 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 $1,760,000 in annual sales, with cost of $670,000. The project an initial investment in net working capital of $350,000, and the fixed asset of $330,000. at the end of the project. a) If the tax rate if 25%: What is the net cash flow at Year 0?  at Year 1? at Year 2? at Year 3? b) If the required return is 10%, what is the NPV?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Down Corporation 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 $1,760,000 in annual sales, with cost of $670,000. The project an initial investment in net working capital of $350,000, and the fixed asset of $330,000. at the end of the project.

a) If the tax rate if 25%:

What is the net cash flow at Year 0?  at Year 1? at Year 2? at Year 3?

b) If the required return is 10%, what is the NPV?

 

 

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