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 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? (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.)
|
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 |
| 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 |
Data given:
Initial fixed asset investment = $2.28 *1000000=$2,280,000
n= 3 year
Annual sales=$1,750,000
Costs = $660,000
Initial investment in net working capital = $330,000
Salvage value= $300,000
Working Note #1
Calculation of depreciation:
Depreciation=
Depreciation=($2,280,000 - $0) / 3
Depreciation=$760,000
Working Note #2
Calculation of disposal of assets:
Market value of asset =$300,000
Less: Book value =$0
Capital gain = $300,000
Tax @ 23% = $ 69000
Disposal of asset =Sales value-Tax= $231,000
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
