Reference no: EM132569435

A company will sell Gizmos to consumers at a price of $97 per unit. The variable cost to produce Gizmos is $49 per unit. The company expects to sell 19,000 Gizmos to consumers each year. The fixed costs incurred each year will be $150,000. There is an initial investment to produce the goods of $3,700,000 which will be depreciated straight line over the 16 year life of the investment to a salvage value of $0. The opportunity cost of capital is 5% and the tax rate is 34%.

a) operating cash flow each year:581545

b) Using the an annual operating cash flow of $581,545, the net present value of this investment is 2602650.70, the company should accept this project.

c) What is the net present value of the project if inventories must be increased at the start of the project (year 0) by $950,000 and will be recovered at the end (year 16), given that the NPV of the project ignoring changes in net working capital is $2,602,650.7?