Question
What is the net present value of the zippered-glove project, which is a 3-year project where GlivCo would make and sell zippered gloves? The project
What is the net present value of the zippered-glove project, which is a 3-year project where GlivCo would make and sell zippered gloves? The project would involve an initial investment in equipment of $136,000 today. To finance the project, GlivCo would borrow $136,000. The firm would receive $136,000 from the bank today and would pay the bank $180,000 in 3 years (consisting of an interest payment of $44,000 and a principal payment of $136,000). Cash flows from capital spending would be $0 in year 1, $0 in year 2, and $47,000 in year 3. Operating cash flows are expected to be $87,000 in year 1, -$12,000 in year 2, and $31,000 in year 3. The cash flow effects from the change in net working capital are expected to be $11,000 at time 0; $4,000 in year 1; -$9,000 in year 2, and $16,000 in year 3. The tax rate is 35 percent. The cost of capital is 5.08 percent and the interest rate on the loan would be 8.03 percent.
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