26 27 3. Assuming we begin a project, which has the same OCFs and WACC as those in this company. You spend $4,000,000 to begin a project and you increase 28 initial (beginning) net working capital by 50,000. At the end of the project, you will be able to recover 30% of your investment back as the salvage value. What are the NPV, IRR and profitability Index (PI) of this project. What if payback is 1.5 years, what will be your decision? What if discounted payback is 30 2.5years, what will be your decision? Using If statements, show whether you'll accept or reject the project. 29 Year 1 Year 2 Year 3 Year 4 Year 5 Year O values $ 4,000,000 $ 50,000 $ 2,950,000 $ 235,000 $ 105,000 $ 475,000 EBIT $ Depreciation $ Taxes* $ Year 0 2,950,000 235,000 1,032,500 OCF Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 35 Initial Outlay 36 Initial NWC 37 EBIT 38 Depreciation 39 Change in NWC 40 Capital spending 41 Increase per year 42 EBIT 43 Depreciation 44 Change in NWC Capital spending 46 WACC 47 Tax rate 15% 20% 10% 20% 9% 35% Decision Using "If Statement" NPV IRR P.I. Payback Discounted Payback