A company is considering a new 5-year project that requires an initial fixed asset investment of $2.6 million. The fixed asset will be depreciated straight line to $100,000 over 5 years, after which, it will have a market value of $350,000. The project requires an initial investment of $425,000 in NWC, which will be recovered at the end of the project. It will generate $3,040,000 in incremental annual sales, and has annual costs of $1,056,000. The tax rate is 30% and the required return is 12%.
A. What is the aftertax salvage value of the fixed asset?
B. What is the operating cash flow of the project?
C. What is the NPV of this project? Should the firm proceed?