Your small company is considering producing a new line of orange flavored soft drink. This project is expected to generate additional revenues of $220,000 and additional costs of $100,000 per year for 5 years (years 1 – 5). Undertaking the project will require an increase in the company’s net working capital (inventory) of $30,000 today (year 0). At the end of the project (year 5), inventory will return to the original level. Fixed assets needed for the project would cost $350,000. Assets will depreciate straight line to $50,000 (the market value of the assets at the end of the project, which will be sold). The marginal tax rate is 10%. The weighted average cost of capital (interest rate) for the firm is 8%.

What is the cost of the project (at time zero on the timeline)?

What is the operating cash flow for years 1 - 4?

In year 5, the firm would receive the OCF you calculated in question 6. What other adjustments are needed to the year 5 cash flow?

What is the present value of this project?