A company is considering a new four-year expansion project that requires an initial asset investment of $2.0 million. The fixed assets will be depreciated on a straight-line basis and its estimated salvage value four years from now is $400,000.
The project also requires an initial investment in net working capital of $250,000. The project is estimated to increase next income before taxes and depreciation by $1.2 million per year. The firms tax rate is 40% and the cost of capital is 12%
What is the annual operating cash flow of the project during its four-year life?
a. 1200,000
b. 880,000
c. 480,000
d. 720,000