1. XYZ is considering a project with the following data:

Sales Revenue = $500,000

Pre-tax Cannibalization cost = $50,000

Asset Cost = $450,000

Straight line depreciation over 3 years with zero salvage value

Operating costs = $250,000 (does not include depreciation)

Tax Rate 21%

a. What is the after-tax cash flow? Assume a cost of capital of 10% and that the cash flows are constant

for 3 years. What is the NPV?

b. What is the NPV if we need to invest $10,000 in NWC today to open the doors and the NWC will be

recovered in year 3?