Problem:

After some troubles in Houston, The Energy Corporation is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million in new equipment. 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.

Requirement:

Question 1: If the tax rate is 35 percent, what is the project's year 0 net cash flow? Year 1? Year 2? Year 3?

Question 2: If the required return is 9 percent, what is the project's NPV?

Note: Please describe comprehensively and provide step by step solution.