Assumptions (Amounts in $ Thousands Unless Otherwise Indicated) Initial Capital Expenditure $9,000 Useful Life of Equipment 5 Annual Depreciation $1,800 Sales in Year 1 $30,000 Sales Growth through Year 6 0.06 Sales Growth Year 6 Onward 0.02 Free Cash Flow Year 6 Onward 0.02 Cost of Goods Sold (% of sales) 72% Incremental SG&A Expense $5,000 Market Research Expense $500 Initial Net Working Capital $6,000 Accounts Receivable % of Next Year Sales 15% Inventory % of Next Year COGS 20% Accounts Payable % of Next Year COGS 15% Interest Expense 1000 Tax Rate 30% Cost of Capital 20% year Unlevered Income Statements Sales cost of goods Sold Gross Profit SG&Expense Depreciation EBIT Income Taxes Unlevered Net Income Working Capital Calculations Inventory Accounts Receivable Accounts Payable NWC Level Change in NWC CF from Change in NWC Unlevered Cash Flows Unlevered Net Income Add Back: Depreciation CF from Change in NWC CF from Capital Expenditure -9000 Free Cash Flow Terminal Value Discount Factor FCF Present Value NPV "in which PV(Terminal Value of FCFs in Year 6 and Beyond)" b. We should discount this Terminal Value back to Year 0. c.

Determine the NPV of the project. Remember to net out any initial cash outflows?