A project requires an initial fixed asset investment of $600,000, which will be depreciated straight-line to zero over the six-year life of the project. The pre-tax salvage value of the fixed assets at the end of the project is estimated to be $50,001. Projected sales volume for each year of the project is shown below. The sale price is $50 per unit for the first three years, and $45 per unit for years 4 through 6. A $30,000 initial investment in net working capital is required, with additional investments equal to 7.5% of annual sales for each year of the project. Variable costs are $35 per unit, and fixed costs are $50,000 per year. The firm has a tax rate of 34% and a required return on investment of 12%.

Year	1	2	3	4	5	6
Sales	10,000	11,000	12,000	13,000	14,000	15,000

Estimate relevant cash flow of the project.

What is NPV of the project?

Should the project be accepted?

Answer rating: 100% (QA)

Answer Below is the table showing Calculation of NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year ... View the full answer