Example for Question 5: Calculating Project Cash Flow from Assets: In the previous problem, suppose the project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. What is the project's Year Onet cash flow? Year 12 Year 2? Year 3? What is the new NPV? Solution: The cash outflow at the beginning of the project will increase because of the spending on NWC. At the end of the project, the company will recover the NWC, so it will be a cash inflow. The sale of the equipment will result in a cash inflow, but we also must account for the taxes that will be paid on this sale. So, the cash flows for each year of the project will be: Year 0 =-$2,320,000 - 250,000 Cash Flow -$2.570.000 1,019.550 1.019 550 1.411.750 2 3 = $1,019,550 + 250,000 + 180,000 + ($0 - 180,000) 21) And the NPV of the project is: NPV =-$2,570,000+ $1,019,550(PVIFA122)+($1,411,750/1.123) NPV = $157.947.28 (Please also see Homework 5 Excel Examples for computation on Excel) Q5: Calculating Project Cash Flow from Assets: In the previous problem, suppose the project requires an initial investment in net working capital of $200,000, and the fixed asset will have a market value of $175,000 at the end of the project. What is the project's Year Onet cash flow? Year 1? Year 2? Year 3? What is the new NPV? (Please follow above example to solve this question)