11-5

• The Mambo Corporation is considering a new 20-year expansion project which will generate $3,000 in annual sales, with costs of $1,000.
• The project requires the initial fixed asset investment of $2,000 and will be worthless at the end of its useful life.
• The project also requires initial investment in NWC of $500, which is expected to be fully recovered at the end of the projects life.
• The annual interest expense incurred by the company for the debt borrowed is $600.
• The corporate tax rate is 30%, and the required rate of return is 15%.
• In Year 11, however, the companys management have found a buyer for the fixed asset they have originally purchased and both parties have agreed on the price of $700.

1. Using the information above, calculate the projects NPV.

2. How would your answer to part (a) change, if instead of $700, the agreed selling price in Year 11 was $1,500.