2 year project Capital required for P&E = $2500 in Y0

WC = $550 in Y1 and $600 in Y2. Total not incremental WC & required at beginning of the year

Salvage value of P&E at end of 2 years = $900

Depreciation in each of first 2 years = $1,000 Production is 1,000 units per year. Assume revenue & costs are all incurred at the end of each year

Price = $2 / unit in Y1 and increases at a rate of 20%

Operating costs in Y1 = $400, Y2 = $500

Company owns land on which to build a plant which has a book value of $300. The current market value is $300 but it is expected to rise at an annual rate of 5%. The land will be sold after 2 years. Company originally planned to start the project 2 years ago and spent $50 in planning, but shelved it. T

ax rate = 34% Cost of capital = 15%.

Determine if we should undertake the project.

You want to:

1) Analyze Do Project

2) Analyze Don't Do

3) Analyze incremental cash flow