Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.242 million.
The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $96, 600.
The project requires an initial investment in net working capital of $138,000. The project is estimated to generate $1, 104,000 in annual sales, with costs of $441, 600. The tax rate is 31 percent and the required return on the project is 16 percent.
(a) What is the project's year 0 net cash flow? -1, 380,000
(b) What is the project's year 1 net cash flow?
(c) What is the project's year 2 net cash flow?
(d) What is the project's year 3 net cash flow?
(e) What is the NPV?