IDG is a venture capital fund, based in VN. Currently, this company has access to a list of potential venture projects. As the funds financial analyst, given the following information for project X, should the fund undertake this venture? To answer, first prepare a pro forma income statement for each year. Next calculate operating cash flow (OCF). Finish the problem by determining total project cash flows for each year and then calculating NPV assuming a 28% required return. Tax rate is 34%.

Project X involves a new type of graphite composite in-line skate wheel. Projected sales volume is 6,000 units per year at $1,000 each. Variable cost will run about $400 per unit, and the product should have a four year life.

Fixed cost for the project will run $450,000 per year. Further, the project will need to invest a total of $1,250,000 in manufacturing equipment. This equipment is depreciated under seven-year MACRS property for tax purposes. By the end of the 4^th year, the equipment would be sold on the market for half of its original price. Initial net working capital needed is $1,150,000. After that, net working capital requirements would be 25% of sales.