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You are evaluating a capital project with a Net Investment of $400,000, which includes an increase...

You are evaluating a capital project with a Net Investment of $400,000, which includes an increase in net working capital of $16,000. The project has a life of 12 years with an expected salvage value of $3,000. The project will be depreciated via simplified straight-line depreciation. Revenues are expected to increase by $90,000 per year and operating expenses by $8,000 per year. The firm's marginal tax rate is 40 percent and the cost of capital for this project is 15%. What is the net present value of this project? Round to the nearest penny. Do not include a dollar sign.

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Answer #1
Annual Operating Cf:
Annual revenues 90000
Less: Cost 8000
Less: Depreciation (400000-3000)/12 33083
Before tax Income 48917
Less: Tax @ 40% 19566.8
After tax income 29350.2
Add: Depreciation 33083
Annual Cashflows 62433.2
Multiply: Annuity PVF at 15% for 12yrs 5.84737
Present value of Inflows 365070
Present value of salvage (3000*0.122894) 368.682
Present value of WC release (16000*0.122894) 1966.304
Total Inflows 367405
Less: Initial investment -400000
Less: Investment in WC -16000
Net present value -48595
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