Finance

Finance 302Project Cash Flow/Net Present Value ProblemThe fixed assets for a three-year capital budgeting project willcost $3,500,000. Additionally, shipping costs will be $40,000.Modification and installation costs will total $360,000. Theassets are in the 3-year MACRS class. A salvage value for theassets at the end of three years is estimated at $210,000.The project is expected to generate sales revenue of $2,650,000each year for three years, and annual project operating costs(excluding depreciation) would be $840,000. An investment of$300,000 in net working capital will be required at thebeginning of the project, and it will be recovered at the end ofthe project. The firm’s income tax rate is 35 percent. Assumea 12 percent weighted average cost of capital.Estimate the project cash flows and compute Net Present Value.Should the project be accepted?