(Isolate working capital)

1. A potential contract with a government agency is expected to generate the following revenue per annum for the next 6 years. "After-tax operating cash flows" for each year are also shown below. The after-tax operating cash flows are prior to consideration of working capital.

Revenue Net Operating Cash Flow (before consideration of WC)

Year 1 $600,000 $120,000

Year 2 650,000 130,000

Year 3 675,000 135,000

Year 4 700,000 140,000

Year 5 700,000 140,000

Year 6 650,000 130,000

1. The project will have an initial outlay of $450,000. The firm uses a cost of capital of 11%. What is the NPV of the project without consideration of working capital?

b) Now consider, the government agency is expected to be a slow pay with an A/R of 175 days. What is the revised NPV of the project?