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Problem 6-4 Calculating Project Cash Flow from Assets 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 will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,750,000 in annual sales, with costs of $660,000. The project requires an nitial 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? (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 12 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow $ -2,610,000 Year 1 cash flow $ 1,014,100 Year 2 cash flow $ 1,014,100 Year 3 cash flow $ 1,575,100 b. NPV

Problem 6-4 Calculating Project Cash Flow from Assets 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 will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,750,000 in annual sales, with costs of $660,000. The project requires an nitial 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? (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 12 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow $ -2,610,000 Year 1 cash flow $ 1,014,100 Year 2 cash flow $ 1,014,100 Year 3 cash flow $ 1,575,100 b. NPV

Essentials Of Investments
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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Problem 6-4 Calculating Project Cash Flow from Assets 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 will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,750,000 in annual sales, with costs of $660,000. The project requires an nitial 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? (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 12 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow $ -2,610,000 Year 1 cash flow $ 1,014,100 Year 2 cash flow $ 1,014,100 Year 3 cash flow $ 1,575,100 b. NPV
Transcribed Image Text:Problem 6-4 Calculating Project Cash Flow from Assets 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 will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,750,000 in annual sales, with costs of $660,000. The project requires an nitial 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? (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 12 percent, what is the project's NPV? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow $ -2,610,000 Year 1 cash flow $ 1,014,100 Year 2 cash flow $ 1,014,100 Year 3 cash flow $ 1,575,100 b. NPV
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