XYZ Company is considering offering a new product. This product requires an investment of $107,000 in new fixed assets and $23,900 in net working capital, all of which is recoverable at the end of the project. The fixed assets will be depreciated straight-line to zero over the 5-year life of the project. The company spent $10,000 to hire a consult to estimate the potential costs and revenue associated with this project. The consultant projects the product will produce annual sales of $95,400 with annual costs of $55,400. At the end of the project, the company should be able to sell the fixed assets for $50,800. The tax rate is 21%.

What is the project's operating cash flow?

Identify the cash flows at the start and end of the project.

What is the project's NPV?

How sensitive are these estimates to a change in required fixed assets? Suppose required fixed assets increase by 4 percent.

What is the new operating cash flow?

What is the new NPV?