Question

You've collected the following information on a project:

3 year project, WACC of 8%.  A depreciable basis of $200,000, and a required NOWC investment of $20,000, returned to the company at the end of year 3. The project has operating CFs of $85,000 in years 1, 2, and 3, and a terminal CF of $5,000.

1) Put the above information into a table with labeled rows and columns t=0, 1, 2, and 3 and determine the overall project cash flows.

3) Calculate the NPV and IRR

Answer 1

Year	Cash flow	× discount rate	Present value
0	$      (220,000)	1.000000	$          (220,000.00)
1	$          85,000	0.925926	$             78,703.70
2	$          85,000	0.857339	$             72,873.80
3	$        110,000	0.793832	$             87,321.55
NPV			$             18,899.05

Terminal cash flow = 85,000 annual + 5000 terminal + 20000 working capital.

NPV is $18,899.05

IRR is 12.49% using excel