In: Finance
H. Cochran Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.29
million. The fixed asset qualifies for 100 percent bonus
depreciation in the first year. The project is estimated to
generate $1,715,000 in annual sales, with costs of $624,000. The
project requires an initial investment in net working capital of
$260,000, and the fixed asset will have a market value of $195,000
at the end of the project.
a. If the tax rate is 21 percent, what is the project’s
Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer
should be indicated by a minus sign. Do not round intermediate
calculations and round your answer to two decimal places, e.g.,
32.16.)
b. If the required return is 9 percent, what is the
project's NPV? (Do not round intermediate calculations and round
your answer to two decimal places, e.g., 32.16.)