In the spring of 2015, Jemison Electric was considering an investment in a new distribution center. Jemison's CFO anticipates additional earnings before interest and taxes (EBIT) of $100,000 for the first year of operation of the center, and, over the next five years, the firm estimates that this amount will grow at a rate of 5% per year. The distribution center will require an initial investment of $400,000 that will be depreciated over a five-year period toward a zero salvage value using straight-line depreciation of $80,000 per year. Jemison's CFO estimates that the distribution center will need additional net working capital equal to 20% of new EBIT Assuming the firm faces a 30% tax rate; calculate the project's annual project free cash flow (FCF) for each of the next five years where the salvage value of operating networking capital and fixed assets is assumed to equal their book values, respectively. Fill out chart below.

QUESTIONS:

1. If the discount rate is 18%, what is the NPV of this project?
2. Conduct a break-even sensitivity analysis and identify the top 3 value drivers
3. How do you reset the NPV number back to the original to continue computations?