So confused please help. Down Under Boomerang, Inc., is considering a new three-
ID: 2703841 • Letter: S
Question
So confused please help.
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project.
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project.
If the tax rate is 35 percent and the required return is 9 percent, what is the projectExplanation / Answer
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial xed asset investment of $2.7 million. The xed asset will be depreciated
straight-line to zero over its three-year tax life, after which time it will be worthless. The
project is estimated to generate $2,400,000 in annual sales, with costs of $960,000. There
are no changes in NWC needs associated with the project.
(a) If the tax rate is 35 percent, what is the OCF for each year of this project?
(b) What is the project's NPV? (Use a discount rate of 12%.)OCF = (1-T) x (Sales - Costs) + T x Depr = .65 x 1,440,000 + .35 x 900,000 =
1,251,000
0 1 2 3
OCF 1251000 1251000 1251000
NCS -2700000 0 0 0
ChNWC
----- ---------------------------------------
CFFA -2700000 1251000 1251000 1251000
NPV = 304,690.92
=
SIMILAR PROBLEM
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.