Netflix is considering making a new investment of $1000 and has come with the following estimates: revenues are 2650, operating expenses 900, depreciation $250 per year. The project will end after four years, the marginal tax rate is 40% and the cost of capital for Netflix is 0.07.

Estimate the initial investment.

Answer for part 1

Estimate the annual after-tax cash flow to Netflix on this investment. (You have to do it only once since the cash flows are the same every year)

Answer for part 2

Estimate the net present value of this project.

Answer for part 3

Now assume that this project will require Netflix to maintain working capital of 10% of revenues occurring at the beginning of each year and the working capital is recovered at the end. Estimate the new initial investment.

Answer for part 4

Estimate the net present value of the project with the working capital.

Answer for part 5