Question
A company will sell Thingamajigs to consumers at a price of $93 per unit. The variable cost to produce Thingamajigs is $22 per unit. The
A company will sell Thingamajigs to consumers at a price of $93 per unit. The variable cost to produce Thingamajigs is $22 per unit. The company expects to sell 10,000 Thingamajigs to consumers each year. The fixed costs incurred each year will be $130,000. There is an initial investment to produce the goods of $3,200,000 which will be depreciated straight-line over the 12 year life of the investment to a salvage value of $0. The opportunity cost of capital is 7% and the tax rate is 28%.
annual operating cash flow of $492,266.67
What is the net present value of the project if inventories must be increased at the start of the project (year 0) by $250,000 and will be recovered at the end (year 12), given that the NPV of the project ignoring changes in net working capital is $709,919.73?
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