Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,750,000 in annual sales, with costs of $652,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? b. If the required return is 12 percent, what is the project's NPV?
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,750,000 in annual sales, with costs of $652,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? b. If the required return is 12 percent, what is the project's NPV?
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
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Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,750,000 in annual sales, with costs of $652,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. |
| a. | If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? |
| b. | If the required return is 12 percent, what is the project's NPV? |
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