Question: A production project will generate an expected operating cash flow of $250,000 per year for 4 years (years 1 4). Undertaking the project will require

A production project will generate an expected operating cash flow of $250,000 per year for 4 years (years 1 4). Undertaking the project will require an increase in the companys net working capital (inventory) of $75,000 today (year 0). At the end of the project (year 4), inventory will return to the original level. The company already spent $400,000 last year on capital equipment that could be used for this project, but would need spend an additional $550,000 on

on new capital for the project. The weighted average cost of capital for the firm is 9%.

Explain the timeline of relevant cash flows (identify the cash flow for year 0; year 1, etc).

What is the net present value of this project? Do you accept or reject?

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