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Down Under Boomerang, Inc. is considering a new three-year expansion project that requires an initial...

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Accounting

Down Under Boomerang, Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,050,000 in annual sales, with costs of $950,000. The tax rate is 35% and the required return is 12 percent. Calculate the projects NPV and IRR. Suppose that Down Under Boomerang is projected to grow at a rate of 4% after year 3. What is the value of the firm? Now, suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. What are the new NPV and IRR? Now what is the value of the firm?

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