A production project will generate an expected operating cash flow of $50,000 per year for 4...

Transcribed Image Text:

A production project will generate an expected operating cash flow of $50,000 per year for 4 years (years 1- 4). Undertaking the project will require an increase in the company's net working capital (inventory) of $10,000 today (year O). At the end of the project (year 4), inventory will return to the original level. New capital spending for the project would cost $150,000. The marginal tax rate is 7%. The weighted average cost of capital for the firm is 9%. Sketch a timeline to illustrate the relevant cash flows (again, type the table and/or explain in words). What is the net present value of this project? A production project will generate an expected operating cash flow of $50,000 per year for 4 years (years 1- 4). Undertaking the project will require an increase in the company's net working capital (inventory) of $10,000 today (year O). At the end of the project (year 4), inventory will return to the original level. New capital spending for the project would cost $150,000. The marginal tax rate is 7%. The weighted average cost of capital for the firm is 9%. Sketch a timeline to illustrate the relevant cash flows (again, type the table and/or explain in words). What is the net present value of this project?

Answer rating: 100% (QA)

The timeline of the relevant cash flows for this project is as follows Year Cash flow 0 160000 ini... View the full answer