Question

Bam Bam & Pebbles, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.52 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 $2,020,000 in annual sales, with costs of $715,000. The project requires an initial investment in net working capital of $240,000, and the fixed asset will have a market value of $290,000 at the end of the project. If the tax rate is 21% what is the net cash flow for each year (0, 1, 2, & 3)? (4 pts) If the require return is 16% what is the projects NPV? (2 pts)

          Bam Bam & Pebbles, Inc., is considering a new three-year
expansion project that requires an initial fixed asset investment
of $2.52 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 $2,020,000 in
annual sales, with costs of $715,000. The project requires an
initial investment in net working capital of $240,000, and the
fixed asset will have a market value of $290,000 at the end of the
project.
If the tax rate is 21% what is the net cash flow for each year
(0, 1, 2, & 3)? (4 pts)
If the require return is 16% what is the projects NPV? (2
pts)

Added by Lorenzo H.

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