Operating cash flows for each year and terminal cash flow

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Reference no: EM131900669

Company X is analyzing a new investment project which has the following characteristics:

Unit price $5.00

Annual unit sales 40,000

Variable cost per unit $2.25

Investment into new machinery (t=0) $300,000

Investment in working capital $50,000 (fully recovered at the end of project)

Project life 6 years

Annual depreciation $40,000

Market value of machinery (t=6) 30,000

Tax rate 40 % (the same for profits and capital gains)

Required rate of return (WACC) 10 %

Marketing research expense $11,000 (the research was conducted earlier this year)

Questions:

Calculations in excel (show formulas ) , or manually

a) Calculate project cash flows: initial investment, operating cash flows for each year and terminal cash flow

b) Evaluate the net present value for the project

c) Is the project good as an investment?

Reference no: EM131900669

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