Oswego Industries is considering investing in a new project and has prepared the incremental earnings forecast and
Question:
Oswego Industries is considering investing in a new project and has prepared the incremental earnings forecast and other information provided below:
Year 0 | Year 1 | Year 2 | Year 3 | |
Revenue | $840,000 | $840,000 | $840,000 | |
Cost of Goods Sold | −320,000 | −320,000 | −320,000 |
Gross Profit | 520,000 | 520,000 | 520,000 | |
Selling, General, & Admin (SG&A) | −110,000 | −110,000 | −110,000 | |
Depreciation | −180,000 | −180,000 | −180,000 |
EBIT | 230,000 | 230,000 | 230,000 | |
Income Tax (21%) | −48,300 | −48,300 | −48,300 |
Incremental Earnings | 181,700 | 181,700 | 181,700 | |
Capital Expenditures | 540,000 |
In addition to the
$540,000
in capital expenditures, the project will require an immediate (T=0) increase in net working capital of
$13,000.
This level of NWC will be maintained for the life of the project and fully recovered at the end of Year 3.
Question A: If Oswego Industries uses a cost of capital of
14%,
what is the NPV of this project?