FAG Inc., is considering an expansion project that requires an initial fixed asset investment of $4.2 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project also requires an initial investment in net working capital (NWC) of $420,000. The project is estimated to generate $3,500,000 in annual sales, with costs of $1,680,000. Suppose the tax rate is 20 percent and the required return is 10 percent.

a. Determine the OCF for the expansion project. 

b. What is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? 

c. What is the project’s NPV? Should the project be accepted? Explain.

Answer rating: 100% (QA)

Ans a computation of OCF is shown below operating cash flow ii Annual saving 1820000 iiiaii Deprecia... View the full answer