Question
A project requires an initial investment in equipment of $90,000 and then requires an investment in working capital of $10,000 at the beginning (t =
A project requires an initial investment in equipment of $90,000 and then requires an investment in working capital of $10,000 at the beginning (t = 0). The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%. Calculate the NPV of the project:
NPV = -100,000 + 42,600/(1.15) + 42,600/(1.15)2 + 59,600/(1.15)3 = 8,443
The answer is correct, but please show me where did 42,600, and 59,600 come from. This where I am confused. Please show work. Thank you.
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