Question
A new (2 year) project would require the purchase of new equipment today at a cost of $9000. The equipment would be depreciated on a
A new (2 year) project would require the purchase of new equipment today at a cost of $9000. The equipment would be depreciated on a straight-line basis over its 2-year useful life to a book value of $6000. At the end of the life of the project (at the year 2 point), the machine will be sold for an estimated $1000. The project will cause an increase in Sales of $8000 in each of years 1 and 2, and an increase in operating expenses of $4000 in each of years 1 and 2. The project will require an increase in Inventory of $1400 and an increase in Accounts Payable of $1200 up front (year 0). These accounts are expected to gradually return to their pre-project levels over the 2-year life of the project. The firm's marginal tax rate is 30%, and its WACC is 10%. The NPV of this project is $____
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