Computing Project OCF

Phone Home, Inc., is considering a new three year expansion project that requires an initial fixed asset investment of $4.2 million. The fixed asset will be depreciation straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate USD 3,100,000 in annual sales, with costs of USD 990,000. If the tax rate is thirty-five percent, determine the OCF for this project?

[A] Computing Project NPV

In the previous problem, assume the required return on the project is twelve Percent, compute the project’s NPV?

[B] Computing Project Cash Flow from Assets

In the previous problem, suppose the required return on the project requires an initial investment in net working capital of USD 300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project’s year 0 net cash flow Year 1, Year 2, Year 3 determine the new NPV?

[C] NPV and Modified ACRS

In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the previous year one net cash flow now? Year two, Year three?  Determine the new NPV?