A firm is evaluating a project which requires an investment of $2,000,000 in plant and equipment to produce a new toy. The equipment will be depreciated straight line to zero over the project's 3-year life. At the end of the project, the equipment's salvage value will be $200,000. Sales will be $1,000,000 beginning in year 1 and will increase by 10% each year of the project's life. COGS will be 20% of sales. The project will require an investment in NWC estimated at 6% of sales with full recovery at the end of the project Assume the firm's tax rate 0.4 and wace 10% Calculate FCFs for each year of the project and determine the NPV. 0 2 1 T Capital Spending Plant & Equipment (+) T Capital Spending Salvage (-) Total Capital Spending NWC Change in NWC Sales COGS Depreciation OCF FCF Discounted FCF at wacc = 10% NPV