Question
Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero
Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 6-year life of the project. The equipment is expected to be scrapped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 27 percent of sales will be required up front to support the project. All of that net working capital investment is expected to be recovered at the end of the project. The required return is 16 percent and the tax rate is 35 percent.
At the end of the projects life, what is the amount of incremental cash flow attributable to the recovery of net working capital?
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