Your company is considering a machine that will cost $1,200 at Time 0 and which will be sold after 3 years for $200. To operate the machine, $250 must be invested at Time 0 in inventories and $50 must be invested in accounts payable. The machine will produce sales revenues of $900/year for 3 years; operating costs (excluding depreciation) will be 50 percent of sales. The machine will have depreciation expenses of $500, $500, and $200 in Years 1, 2, and 3, respectively. The company has a 40 percent tax rate and a 10 percent cost of capital.

7-What is the cash flow of this project at time 3? (The sum of both operating and non-operating cash flows)

a) $810 b) $640 c) $670 d) $650 e) $890

What is the NPV of this project?

a) -$45.94 b) -$115.89 c) -$175.73 d) -$80.92 e) -$90.41