Question
Caitlin's Textiles is considering offering a new product. This product requires an investment of $160,000 in new fixed assets and $29,450 in net working capital,
Caitlin's Textiles is considering offering a new product. This product requires an investment of $160,000 in new fixed assets and $29,450 in net working capital, all of which is recoverable at the end of the project. The fixed assets will be depreciated straight line to zero over the 7-year life of the project. The company spent $10,000 to hire a consult to estimate the potential costs and revenue associated with this project. The consultant projects the product will produce annual sales of $110,200 with annual costs of $70,300. At the end of the project , the company should be able to sell the fixed assets for $43,800.
What is the project's operating cash flow?
Identify the cash flows at the start and end of the project...
CF0 = ??
CF7 = ??
What is the project's net present value?
How sensitive are these estimates to a change in sales? Suppose that sales increase by 5 percent
New OCF = ??
New NPV = ??
Inflation is etimated to be 3.80 percent. What is the real return on this project, assuming all originally project cash flows are correct?
Real return = ??
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