Problem:

Maroon Cartoon, Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,070,000 in annual sales, with costs of $767,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $265,000 at the end of the project.

Requirement:

Question 1: If the tax rate is 34 percent, what is the project's year 1 net cash flow? Year 2? Year 3?

Question 2: If the required return is 13 percent, what is the project's NPV?

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