Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,070,000 in annual sales, with costs of $767,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $265,000 at the end of the project.

a. If the tax rate is 21 percent, what is the projects Year 1 net cash flow? Year 2? Year 3? Table 8.3. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

b. If the required return is 13 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.)

TABLE 8.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) RECOVERY PERIOD CLASS 5 YEARS 7 YEARS 10 YEARS YEAR 3 YEARS 15 YEARS 1 2 3 4 5 6 3333 4445 .1481 .0741 .2000 3200 .1920 .1152 .1152 .0576 .1429 2449 .1749 .1249 .0893 .0892 0893 .0446 .1000 .1800 .1440 .1152 .0922 .0737 .0655 .0655 .0656 .00 0328 20 YEARS .03750 .07219 .06677 .06177 05713 .05285 .04888 .04522 .04462 .04461 .0500 .0950 0855 .0770 .0693 0623 .0590 .0590 ,0591 .0590 .0591 .0590 .0591 .0590 0591 0295 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 .04462 .04461 04462 .04461 .04462 .04461 .04462 .04461 .04462 .04461 .02231 Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946. How to Depreciate Property and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually carries over six years because the IRS assumes purchase is made in midyear