Question: Johnson Inc. is considering a new fouryear expansion project that requires an initial fixed asset investment of $2.5 million. The fixed asset will be depreciated

Johnson Inc. is considering a new fouryear expansion project that requires an initial fixed asset investment of $2.5 million. The fixed asset will be depreciated straightline to zero over its fouryear tax life, after which it will be worthless. The project is estimated to generate $2 million in annual sales, with costs of $800,000.

a. If the tax rate is 35 percent, what is the OCF for this project?

b. Suppose the required return on the project is 13 percent. What is the projects NPV?

(answer using Excel format)

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