You are evaluating a project that increases your near-term inventory efficiency. The project will initially cost...

 

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You are evaluating a project that increases your near-term inventory efficiency. The project will initially cost $2 million in capital expenditures (immediately), and it will be depreciated over three years (straight-line) with zero salvage value. You do not anticipate additional capital spending. The firm's marginal tax rate is 35%, and the project's WACC is 30%. Assume that all other net working capital accounts (other than inventory) and capex remain the same. Revenue and Cost of Goods Sold projections are shown below. What is the NPV of this project? I (amounts in Smillions) Revenue COGS Inventory Days Oustanding Base Case New Project Actual (last year) 2015 50 40 70 70 2016 200 140 70 50 Projected 2017 300 200 60 50 2018 250 150 50 50 You are evaluating a project that increases your near-term inventory efficiency. The project will initially cost $2 million in capital expenditures (immediately), and it will be depreciated over three years (straight-line) with zero salvage value. You do not anticipate additional capital spending. The firm's marginal tax rate is 35%, and the project's WACC is 30%. Assume that all other net working capital accounts (other than inventory) and capex remain the same. Revenue and Cost of Goods Sold projections are shown below. What is the NPV of this project? I (amounts in Smillions) Revenue COGS Inventory Days Oustanding Base Case New Project Actual (last year) 2015 50 40 70 70 2016 200 140 70 50 Projected 2017 300 200 60 50 2018 250 150 50 50

Answer rating: 100% (QA)

To calculate the NPV of the project we need to determine the cash flows associated with the project ... View the full answer