Question
a company is about to start a two year project. It will require an upfront investment of $200,000 in a new machine to get started
a company is about to start a two year project. It will require an upfront investment of $200,000 in a new machine to get started (this initial investment will be made today, at time t = 0). At the end of year one (time t = 1), the project will generate sales of $522,000, costs of good sold of $327,000, and depreciation expense of $100,000. At the end of year two, the project will generate sales of $733,000, costs of good sold of $479,000, and depreciation expense of $100,000. To get started, an investment in working capital of $202,000 is needed at time t = 0, and this working capital will be recouped at the end of the project (at t=2). At the end, the machine will also be scrapped. What is the NPV of the project if the opportunity cost of capital is 13% and the tax rate is 27%?
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