Question

Tetious Dimension is introducing a new product and has an expected change in net operating income...

Tetious Dimension is introducing a new product and has an expected change in net operating income of $475,000. To examine the possibility of introducing this new product, the company has performed a marketing research in the last year that has had a cost of $80,000. Tetious Dimensions. has a 34% marginal tax rate. Should the company decide to invest in this project, there will be a $100,000 depreciation expense per year. In addition, this project will cause the following changes:

Without the Project

With the Project

Accounts Receivable

$45,000

$63,000

Inventory

65,000

80,000

Accounts Payable

70,000

94,000

a) What is the project’s free cash flow?

b) Do we have enough information to calculate NPV? Why or why not? If yes, calculate.

I got the answer $404,500 for the free cash flow portion but I am not sure if I am supposed to factor the market research into this (I haven't yet) and I also don't know how to answer part b.

Thanks for your help!

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