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
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