• Assume that initial investment in a project that will run for 4 years is $1200. This will be depreciated to a book value of Zero over 4 years using straight line method.

• The net working capital is $70 which be recovered fully at end of the project in year.

• The incremental revenue from this project will be 1000 and the incremental costs of

  operating this project will be $150 during the project.

• The warehouse for the project would otherwise fetch an annual rent of $100 if this

  project is not accepted.

• $2000 is spent on research and development for the project.

• The equipment can be sold for a salvage value of $200 at the end of the project and the

  shutdown costs associated with the project will be $80.

• The cost of capital is 8%. Tax Rate is 30%.

  i) Complete and provide the Table for Incremental Free Cash Flows. (8 marks)

• ii) Calculate NPV of Project Comfy Shoes. Should you accept or reject the project?

  Why?