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Compute the cash flow from assets for each year

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Reference no: EM132519609

The project requires $25 million in initial capital investment, and will have an economic lífe of 5 years. The investment will be straight-line depreciated down to a book value of zero at the end of 5 years. The investment is expected to be salvaged for $5 million at the end of 5 years.

  • The projected sales are $20 million per year from year 1 through year 5, variable costs are 50% of annual sales, and fixed costs are $3 million per year.
  • The corporate tax rate is 20 percent.
  • The weighted average cost of capital applicable to the proposed project is 8% Ignore investment in net working capital.

Question a) compute the cash flow from assets for each year. ("cash flow from assets" = "free cash flow")

Question b) What is the NPV of the project?

Question c) If the projected annual sales decrease by 5% to $19 million per year, how much would the project's NPV change?

Reference no: EM132519609

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