Reference no: EM133111295

Your firm is considering a new capital budgeting project. The equipment cost $18,000,000 . It will depreciate by the straight-line method over six years, and the useful life of the project is also estimated to be six years. You expect annual sales to be $12,750,000 . Fixed costs are estimated at $1,750,000 and variable costs should be 55% of sales. Your firm faces a 30% marginal tax rate. Estimate the annual operating cash flow for the project will generate over its six year life . You also expect that at the end of the six year operating life, you will be able to sell the equipment for scrap for $5000000 . Consider any capital gains taxes on this sell.

If your firm's required a return of 9% on such a projects, estimate the Net Present Value of this investment.