Question

Jasper Metals is considering installing a new molding machine is expected to produce operating cash flows of $58,000 per year for 7 years. At the beginning of the project, inventory will decrease by $18,400, accounts receivables will increase by $22,200, and accounts payable will increase by $15,900. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $258,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $54,000. What is the net present value of the project given a required return of 10.3 percent?

Answer #1

Working capital investment = Increase in current assets-Increase in current liabilities =(+18400-22200+15900) = 12100

CF0 =-258000+12100 = -245900

CF7 =58000+54000-18400+22200-15900 =99900

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