Reference no: EM13618526

McGriff Manufacturing is reviewing a new proposal to invest in the production and distribution of a new product. The proposed investment is expected to generate yearly sales of $2.4 million for a period of five years. Although the firm can expect to earn a profit margin of 10 percent on each dollar of sales, the proposal fails to consider the impact of working capital requirements on the Net Present Value of the project. With proper inventory controls, the project will have inventory turnover of 4.8 times per year. Given the terms of credit typically supplied by competitors, receivables turnover for the project will be 8 times per year. Although McGriff will be a able to obtain a limited amount of financing through trade credit from its suppliers, the firm's supplier are insisting that all purchases must be paid in full at the end of 30 days, putting the turnover for accounts payable at 12 times per year. Assuming that McGriff has a required return of 10 percent, determine the incremental impact of the required investment in working capital on the NPV of the proposed investment.