Fun With Finance is considering a new 3-year expansion project that requires an initial fixed asset...
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Fun With Finance is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.89 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $147,000. The project requires an initial investment in net working capital of $210,000. The project is estimated to generate $1,680,000 in annual sales, with costs of $672,000. The tax rate is 30 percent and the required return on the project is 12 percent. Required: (a)What is the project's year O net cash flow? (b)What is the project's year 1 net cash flow? (c) What is the project's year 2 net cash flow? (d)What is the project's year 3 net cash flow? (e) What is the NPV? Fun With Finance is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.89 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $147,000. The project requires an initial investment in net working capital of $210,000. The project is estimated to generate $1,680,000 in annual sales, with costs of $672,000. The tax rate is 30 percent and the required return on the project is 12 percent. Required: (a)What is the project's year O net cash flow? (b)What is the project's year 1 net cash flow? (c) What is the project's year 2 net cash flow? (d)What is the project's year 3 net cash flow? (e) What is the NPV?
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Certainly lets work through this capital budgeting problem stepbystep a Year 0 Net Cash Flow The ini... View the full answer
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