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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset...
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $6.1 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $474,600 after 3 years. The project requires an initial investment in net working capital of $678,000. The project is estimated to generate $5,424,000 in annual sales, with costs of $2,169,600. The tax rate is 31 percent and the required return on the project is 15 percent. (Do not round your intermediate calculations.) Required: (a) What is the project's year 0 net cash flow? (b) What is the project's year 1 net cash flow? (c) What is the project's year 2 net cash flow? (d) What is the project's year 3 net cash flow? (e) What is the NPV?
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Expert Solution
Total Inital Investment, Annual Operating cash flow and NPV at 15% discount rate is calculated in excel and screen shot provided below:
(a) Project's year 0 net cash flow is $6,778,000.
(b) Project's year 1 net cash flow is $2,875,806
(c) Project's year 2 net cash flow is $3,086,086
(d) Project's year 3 net cash flow is $3,671,190.
(e) NPV of project is $470,092.29.
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