Down Under Boomerang, Inc., is considering a new 3-year expansion project that r
ID: 2701318 • Letter: D
Question
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.268 million. The fixed asset falls into the 3-year MACRS class (MACRS Table). The project is estimated to generate $2,016,000 in annual sales, with costs of $806,400. The tax rate is 33 percent and the required return is 18 percent. The project requires an initial investment in net working capital of $252,000 and the fixed asset will have a market value of $176,400 at the end of the project.
What is the net cash flow for Years 0-4?
What is the NPV for the project?
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.268 million. The fixed asset falls into the 3-year MACRS class (MACRS Table). The project is estimated to generate $2,016,000 in annual sales, with costs of $806,400. The tax rate is 33 percent and the required return is 18 percent. The project requires an initial investment in net working capital of $252,000 and the fixed asset will have a market value of $176,400 at the end of the project.
What is the net cash flow for Years 0-4?
What is the NPV for the project?
Explanation / Answer
Hi,
Please find the answer as follows (actually you need to take upto 3 decimal places for MACRS depreciation to get the answer):
Cash Flows
Year 0 = -2520000
Year 1 = 1059662.52
Year 2 = 1142739.36
Year 3 = 921201.12 + 252000 + 176400 = 1349601.12
NPV = -2268000 -252000 + 1059662.52/(1+.18)^1 + 1142739.36/(1+.18)^2 + 1349601.12/(1+.18)^3= 20125.607 or 20125.61
Answer is 20125.607 or 20125.61
Thanks.
Cash Flow Before
Depreciation Depreciation Income Before Tax Net Income After Tax Annual Cash Inflows Year 1 1209600 755244 454356 304418.52 1059662.52 Year 2 1209600 1006992 202608 135747.36 1142739.36 Year 3 1209600 335664 873936 585537.12 921201.12
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