Question
A production project will generate an expected operating cash flow of $50,000 per year for 4...
A production project will generate an expected operating cash flow of $50,000 per year for 4 years (years 1 – 4). Undertaking the project will require an increase in the company’s net working capital (inventory) of $10,000 today (year 0). At the end of the project (year 4), inventory will return to the original level. The project would cost $150,000. The marginal tax rate is 35%. The weighted average cost of capital for the firm is 9%. Sketch a timeline to illustrate the relevant cash flows (again, type the table and/or explain in words). What is the net present value of this project?
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