Project requires initial investment in net working capital

Assignment Help Financial Management

Reference no: EM131445320

Down Under Boomerang, Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $4,200,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,450,000 in annual sales, with costs of $1,612,500. The tax rate is 35 percent and the required return is 10 percent. What is the project’s NPV?

In the previous problem, suppose the project requires an initial investment in net working capital of $450,000 and the fixed asset will have a market value of $575,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV?

Reference no: EM131445320

Questions Cloud

What is the effective annual interest on this mortgage : You have just taken out a 30-year, $120,000 mortgage on your new home. This mortgage is to be repaid in 360 equal installments. Each monthly payment is $1,500. What is the effective annual interest on this mortgage? What APR would make you indifferen..

The investment will be depreciated straight line : The initial investment in the project will be $21 million, and the investment will be depreciated straight line, down to a salvage value of $9 million at the end of the fourth year. The revenues are expected to be $24 million next year and to grow 5%..

Sufficient to maintain the long-standing policy : The manager of a municipal ice rink is concerned that the flow of patrons will not be sufficient to maintain the long-standing policy of keeping the rink on a self-supporting basis. Revenues come mainly from the hourly rental of ice time (the city ha..

What is the duration of a two-year zero-coupon bond : What is the duration of a two-year bond that pays an annual coupon of 10.1 percent and has a current yield to maturity of 12.1 percent? Use $1,000 as the face value. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent?

Project requires initial investment in net working capital : Down Under Boomerang, Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $4,200,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it wi..

How much interest did you pay over the term of the loan : Able Medical Clinic has borrowed $60 million from a bank under the following terms: Payments are to be made end of every quarter for next 10 years. Interest rate is 8.4% compounded quarterly (i.e., 2.1% per quarter). Prepare an amortization table. Ho..

Which specializes in making of natural gas furnaces : Peter is a salesman for Kroner industries which specializes in making of natural gas furnaces. Peter has told you that your current furnace needs to be replaced and he offers the following choices. All furnaces have a useful life of 10 years. Choice ..

Stock has standard deviation of return : A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 17%, while stock B has a standard deviation of return of 23%. Stock A comprises 70% of the portfolio, while stock B comprises 30% of the portfolio.

What is the total return of the tips in percentage : Consider a 2.85 percent TIPS with an issue CPI reference of 200.4. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was 210.3. What is the total return of the TIPS in percentage?

User Account

All Pages