TABLE 8.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) RECOVERY PERIOD CLASS 5 YEARS 7 YEARS 10 YEARS YEAR 3 YEARS 15 YEARS 20 YEARS 3333 4445 .1481 .0741 .2000 .3200 .1920 1152 .1152 .0576 .1429 2449 .1749 1249 .0893 0892 .0893 .0446 .1000 1800 .1440 1152 .0922 .0737 .0655 .0655 .0656 .0655 .0500 .0950 .0855 .0770 .0693 .0623 .0590 .0590 .0591 .0590 .0591 .0590 .0591 .0590 .0591 .0295 .0328 .03750 .07219 .06677 .06177 .05713 .05285 .04888 .04522 .04462 .04461 .04462 .04461 .04462 .04461 .04462 .04461 .04462 .04461 .04462 .04461 .02231 Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946. How to Depreciate Property and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually carries over six years because the IRS assumes purchase is made in midyear. Problem 8-5 NPV and Modified ACRS Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,000,000 in annual sales, with costs of $711,000. The project requires an initial investment in net working capital of $220,000, and the fixed asset will have a market value of $300,000 at the end of the project. If the tax rate is 35 percent, what is the project's Year 1 net cash flow? Year 2? Year 3? Table 8.3 (Enter your answers in dollars, not millions of dollars. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 1,234,567.89.) Cash Flow A A Year o Year 1 Year 2 Year 3 A A If the required return is 16 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $0