Company X is analyzing a new investment project which has the following characteristics:

Unit price $5.00

Annual unit sales 40,000

Variable cost per unit $2.25

Investment into new machinery (t=0) $300,000

Investment in working capital $50,000 (fully recovered at the end of project)

Project life 6 years

Annual depreciation $40,000

Market value of machinery (t=6) 30,000

Tax rate 40 % (the same for profits and capital gains)

Required rate of return (WACC) 10 %

Marketing research expense $11,000 (the research was conducted earlier this year)

Questions:

Calculations in excel (show formulas ) , or manually

a ) Calculate project cash flows: initial investment, operating cash flows for each year and terminal cash flow

b) Evaluate the net present value for the project

c) Is the project good as an investment?