Question

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. 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 $2,170,000 in annual sales, with costs of $865,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project. If the tax rate is 35 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)

Answer 1

	Year 0	Year 1	Year 2	Year 3
Initial investment	-2970000
Net working capital	-390000
Annual Sales		2170000	2170000	2170000
Costs		865000	865000	865000
Depreciation		990000	990000	990000
EBT		315000	315000	315000
Less: Taxes @35%		110250	110250	110250
Net operating income		204750	204750	204750
Add: Depreciation		990000	990000	990000
Add: Salvage value				255000
Net cash flow	-3360000	1194750	1194750	1449750