Question
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
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 companys 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 present value of this project?
The answer is 129,615.60 but I don't know to get that answer. I answered all the other questions correctly such as cost of the project and the cash flow in year 1 -4.
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