Question: Assume that a company is going to invest 900,000 USD in a new project. We expect that the invested capital in the fixed assets

 

Assume that a company is going to invest 900,000 USD in a new project. We expect that the invested capital in the fixed assets will be fully depreciated within 3 years as follows: 500,000 USD, 300,000 USD and 100,000 USD in 3 years respectively. The project is assumed to generate the cash flows 350,000 USD every year. The weighted average cost of capital is 12%. Assume that NOPAT is the difference between the cash flow in each year and the annual depreciation. Determine whether: a) NOPAT increases consequently every year b) The capital charge CC decreases consequently every year c) ROIC is -16,67% in Year 1 d) The economic value added EVA (EP) is negative in Year 1.

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