Cochrane, INC., is considering a new three-year expansion project that requires an intial fixed asset investment of 2,340,00. The fixed asset falls into the three-year MACRS class. The project is estimated to generate 2,230,000 in annual sales, with costs of 1,220,000. The project requires an intial investment in net working capital of 158,000, and the fixed assett will have a market value of 183,000 at the end of the project. Assume that the tax rate is 40 percent and the required rate of return on the project is 9 percent.
Requirement 1.
What are the cash flows for year 0, 1, 2, and 3?
Requirement 2.
What is the NPV of the project?