Down Under Boomerang, Inc., is considering a new 3-yearexpansion project that requires an initial fixed asset investmentof $2.37 million. The fixed asset falls into the 3-year MACRS class(MACRS schedule). The project is estimated to generate $1,765,000in annual sales, with costs of $664,000. The project requires aninitial investment in net working capital of $360,000, and thefixed asset will have a market value of $345,000 at the end of theproject.
| a. | If the tax rate is 21 percent, what is the project’s Year 0 netcash flow? Year 1? Year 2? Year 3? |
| b. | If the required return is 11 percent, what is the project'sNPV? |
