Question
Teradyne Industries is considering a new investment project. The project requires an initial investment of $10 million. Teradyne will also increase inventory by $10 million
Teradyne Industries is considering a new investment project. The project requires an initial investment of $10 million. Teradyne will also increase inventory by $10 million in year one. In year two, as Teradyne increases credit sales, its accounts receivable will increase by $2 million. In year five, when the project is complete, all accounts receivable will be collected, decreasing receivables by $2 million. Teradyne will also wind down its inventory by $10 million. If the project produces operating cash flows of $4 million per year and Teradynes cost of capital is 12.5%, what is the NPV of the project?
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