Indigo River Packaging is considering a project that would last for 2 years and have a...

Indigo River Packaging is considering a project that would last for 2 years and have a cost of capital of 17.88 percent. The relevant level of net working capital for the project is expected to be 24,000 dollars immediately (at year 0); 26,000 dollars in 1 year; and 0 dollars in 2 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, and 2 are presented in the following table (in dollars). The tax rate is 50 percent. What is the net present value of this project?

	Year 0	Year 1	Year 2
Revenue	$0	167,000	167,000
Costs	$0	64,000	64,000
Depreciation	$0	40,000	40,000
Cash flows from capital spending	-84,000	0	19,000

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Expert Solution

Compute the net present value, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the net present value is $31,709.03102

jeff jeffy answered 1 year ago

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