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What is the cost of the project

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Your small company is considering producing a new line of orange flavored soft drink. This project is expected to generate additional revenues of $220,000 and additional costs of $100,000 per year for 5 years (years 1 - 5). Undertaking the project will require an increase in the company's net working capital (inventory) of $30,000 today (year 0). At the end of the project (year 5), inventory will return to the original level. Fixed assets needed for the project would cost $350,000. Assets will depreciate straight line to $50,000 (the market value of the assets at the end of the project, which will be sold). The marginal tax rate is 10%. The weighted average cost of capital (interest rate) for the firm is 8%.

  • What is the cost of the project (at time zero on the timeline)?
  • What is the operating cash flow for years 1 - 4?
  • In year 5, the firm would receive the OCF you calculated in question 6. What other adjustments are needed to the year 5 cash flow?
  • What is the present value of this project?
  • If you work in excel can you also show me the formulas that are used to find the answers.

Reference no: EM132491560

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