Question

Perini 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 14 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	$82,000
Sales revenue		$58,000	$58,500	$59,200	$60,200
Operating cost		19,000	19,200	19,500	20,000
Depreciation		20,500	20,500	20,500	20,500
Net working capital spending	8,500	2,000	1,700	1,200	?

		$11,289.84
		$15,610.18
		$13,347.55
		$12,296.88
		$14,780.65

Answer 1