QUESTION 9

1. Ferro Development is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Suppose the appropriate discount rate is 12 percent. Determine the net working capital spending for Year 4 then calculate the NPV of the project. What is the project NPV?

   	Year 0	Year 1	Year 2	Year 3	Year 4
   Investment	$158,000
   Sales revenue		$88,000	$88,800	$90,000	$91,500
   Operating cost		15,200	15,800	16,800	18,200
   Depreciation		39,500	39,500	39,500	39,500
   Net working capital spending	12,000	7,000	6,000	4,000	?

   		$30,954.27
   		$36,477.21
   		$41,208.53
   		$45,386.79
   		$51,560.20