Question

Yellow Sand Recycling is considering a project that would last for 2 years and have a cost of capital of 6.12 percent. The relevant level of net working capital for the project is expected to be 21,000 dollars immediately (at year 0); 32,000 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	178,000	178,000
Costs	$0	60,000	60,000
Depreciation	$0	34,000	34,000
Cash flows from capital spending	-74,000	0	12,000

Answer 1