Problem:
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the three-year MACRS class (MACRS Table). The project is estimated to generate $2,210,000 in annual sales, with costs of $1,200,000. The project requires an initial investment in net working capital of $156,000, and the fixed asset will have a market value of $181,000 at the end of the project. Assume that the tax rate is 35 percent and the required return on the project is 11 percent.
Required:
Question 1: What is the net cash flow of the project for the following years?
Question 2: What is the NPV of the project?
Note: Please show how to work it out.