Greenland Corporation is considering a new investment. Financial projections for the investment are tabulated here. The corporate
Question:
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Greenland Corporation is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Suppose the appropriate discount rate is 13 percent. Determine the net working capital spending for Year 4 then calculate the NPV of the project. What is the project NPV?
Year 0
Year 1
Year 2
Year 3
Year 4
Investment
$176,000
Sales revenue
$92,000
$92,800
$94,000
$95,500
Operating cost
18,000
18,600
19,600
21,000
Depreciation
44,000
44,000
44,000
44,000
Net working capital spending
10,000
4,000
2,000
1,000
?
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe