H. Cochran, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.15
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 $2.23 million in
annual sales, with costs of $1.25 million. The project requires an
initial investment in net working capital of $150,000, and the
fixed asset will have a market value of $185,000 at the end of the
project. Assume that the tax rate is 23 percent and the required
return on the project is 14 percent.
a.
What are the net cash flows of the project for each
year? (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g.,
32.16.)
b.
What is the NPV of the project? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)