Question
Your company is starting a two year project. It will require an upfront investment of $300,000 in a new machine to get started (this initial
Your company is starting a two year project. It will require an upfront investment of $300,000 in a new machine to get started (this initial investment will be made today, at time t = 0), which will be depreciated straight-line to a salvage value of $100,000 over the next two years. At the end of year one (time t = 1), the project will generate sales of $512,000, and costs of good sold of $340,000. At the end of year two, the project will generate sales of $714,000, and costs of good sold of $467,000. To get started, an investment in working capital of $215,000 is needed at time t = 0, and this working capital will be recouped at the end of the project (at t=2). At the end, the machine will also be scrapped, so the company is then expected to get a tax credit from the book loss. What is the NPV of the project if the opportunity cost of capital is 15% and the tax rate is 28%? (answer in DOLLARS, but without the dollar sign, e.g. "100000" is $100,000. The answer could be negative.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started