Question

Greenpoint Corporation is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Suppose the appropriate discount rate is 12 percent. Determine the net working capital spending for Year 4 then calculate the NPV of the project. What is the project NPV? Year 0 Year 1 Year 2 Year 3 Year 4 Investment $118,000 Sales revenue $75,000 $75,800 $77,000 $78,500 Operating cost 18,000 18,600 19,600 21,000 Depreciation 29,500 29,500 29,500 29,500 Net working capital spending 10,000 4,000 2,000 1,000 ? $30,532.66 $29,744.78 $28,568.41 $27,520.33 $26,244.80

Answer 1

Answer is $29,744.78