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SEATWORK \# 2: CASH FLOW ESTIMATION Problem 1: Project Information: - Cost of equipment =$400,000. - Shipping \& installation will be $20,000. - Useful life of equipment =5 years - $25,000 in net working capital required at setup. - 3-year project life. - Simplified straight line depreciation. - Revenues will increase by $220,000 per year. - Defects costs will fall by $10,000 per year. - Operating costs will rise by $30,000 per year. - Market value after year 3 is $200,000. - Cost of capital =12%, marginal tax rate =34%. 1. Calculate the initial outlay, incremental cash flows (Years 1-3) and terminal cash flow. 2. Calculate the NPV for the project. 3. Is the project acceptable