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A potential project is expected to generate the following revenue per annum for the next 6...

A potential project is expected to generate the following revenue per annum for the next 6 years with an “after-tax operating cash flows” shown below (prior to consideration of working capital) from new business with a government agency.

Revenue Net Operating Cash Flow (before consideration of WC)

Year 1 $600,000 $120,000                               

                        Year 2    650,000                      130,000                               

                        Year 3    675,000                      135,000                               

                        Year 4     700,000                      140,000       

                        Year 5     700,000                      140,000

                        Year 6     650,000                      130,000

1. The project will have an initial outlay of $450,000. The firm uses a cost of capital of 11%. What is the NPV of the project without consideration of working capital?

2. Now consider, the government agency is expected to be a slow pay with an A/R of 175 days. What is the revised NPV of the project?

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