Question

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.430 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $189,000 after 3 years. The project requires an initial investment in net working capital of $270,000. The project is estimated to generate $2,160,000 in annual sales, with costs of $864,000. The tax rate is 35 percent and the required return on the project is 14 percent. The net cash flow in Year 0 is $__w__ ; the net cash flow in Year 1 is $__x__; the net cash flow in Year 2 is $__y__; and the net cash flow in Year 3 is $__z__. The NPV for this project is $__NPV__. What is w, x, y, z, NPV? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

  

Answer 1

			Year-1	Year-2	Year-3
Annual sales revennue			2160000	2160000	2160000
Less: Annual cost			864000	864000	864000
Less: Depreciation			809919	1080135	359883
Before tax Income			486081	215865	936117
Less: Tax @ 35%			170128.4	75552.75	327641
After tax Income			315952.7	140312.3	608476.1
Add: Depreciation			809919	1080135	359883
Annual cashflows			1125872	1220447	968359.1
Cashflows of various year:
		Year-0	Year-1	Year-2	Year-3
Initial investment		-2430000
NWC investment		-270000
Annual cashflows			1125872	1220447	968359.1
WC release					270000
After tax salvage value					185872
Annual casshflows		-2700000	1125872	1220447	1424231
NPV at 14%
Annual Cashflow		-2700000	1125872	1220447	1424231
PVF at 14%		1	0.877193	0.769468	0.674972
Present value		-2700000	987607	939094.3	961315.4
NPV at 14%		188016.7
Note: After tax salvage value
Sales value			189000
Book value	(2430000*741%)		180063
Gain on sale			8937
tax on gain at 35%			3128
Net after tax sale value = 189000-3128 = 185872