Question: You are considering a new 3-year project that requires an initial fixed asset investment of $1.5 million. The fixed asset will be depreciated straight-line to $600,000 over its 3-year life. The project is estimated to generate $600,000 in annual sales, with costs of $200,000. The tax rate is 30% and the required return on the project is 6 percent.
1. What is the net income of the project in each year?
2. What is the operation cash flow of the project in each year?
3. What is the after-tax salvage value in year 3?
4. What is the net present value for this project?