Question
A firm is deciding on a new project. Use the following information for the project evaluation and analysis: - The initial costs are $450,000 for
A firm is deciding on a new project. Use the following information for the project evaluation and analysis:
- The initial costs are $450,000 for fixed assets. The fixed assets will be depreciated straight line to a zero book value over the 3-year life of the project. The fixed assets have an estimated salvage value of $30,000 at the end of the project.
- The project also requires an additional $100,000 for net working capital to start the project. All of the net working capital will be recouped at the end of the 3 years.
- The project is expected to generate annual sales of $1,000,000 (1,000 units at $1,000) and total costs of $550,000 per year
- The firms marginal tax rate is 40 percent.
- The required rate of return for this project is 20%
a) What is the Operating Cash Flow for each year of the project?
b) What is the after-tax salvage value at the end of this project
c) What are the Cash Flows from Assets each year for this project?
Year 0 1 2 3
OCF
NWC
NCS
CFFA
d) What is the NPV of this project?
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