A project requires an initial investment in equipment of $90,000 and also requires an initial investment in net working capital of $10,000 (at t = 0), net working capital is recovered at the end of the project. You expect the project to produce sales revenue of $120,000 per year for three years. You estimate manufacturing costs at 60% of revenues. (Assume all revenues and costs occur at year-end, i.e., t = 1, t = 2, and t = 3.) The equipment depreciates using straight-line depreciation to zero over three years. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 16.5%. Calculate the NPV of the project.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the project we need to determine the cash flows for each y... View the full answer