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1.Projected Total Cash Flows Firm A is considering a project which will initially require $12,000 for...

1.Projected Total Cash Flows

Firm A is considering a project which will initially require $12,000 for new equipment. The equipment will be depreciated straight line to a zero book value over the three year life of project

In addition, the project will require an investment of $30,000 in net working capital which will be recovered at the end of the project

Annual sales are $45,000 with cost of $32,400.The tax rate is 34%

What is the net present value of this project if the required return is 14%?

Estimate OCF
Estimate Capital Requirements: NWC and NCS
Estimate Projected total cash flows
Net present value or IRR

Expert Solution

OCF= $9676

NWC at Period 0 = $ (30000)

NWC at Period 3 =$ 30000

NCS at Year 0= $ (12000)

Projected Cash Flow

Period 0=(42000)
Period 1-3=9676
Period 3=30000

Net Present Value= $ 717.67

IRR = 14.78%

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jeff jeffy answered 1 year ago

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