Question

ABC Corp. is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,070,000 in annual sales, with costs of $765,000. 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. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? Years Cash Flow   Year 0 $      Year 1 $      Year 2 $      Year 3 $

If the required return is 13 percent, what is the project's NPV?

Answer 1