Question

Orange Valley Media is considering a project that would last for 2 years and have a cost of capital of 11.16 percent. The relevant level of net working capital for the project is expected to be 19,000 dollars immediately (at year 0); 10,000 dollars in 1 year; and 0 dollars in 2 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, and 2 are presented in the following table (in dollars). The tax rate is 50 percent. What is the net present value of this project?

	Year 0	Year 1	Year 2
Revenue	$0	206,000	206,000
Costs	$0	66,000	66,000
Depreciation	$0	38,000	38,000
Cash flows from capital spending	-80,000	0	16,000

Answer 1