Reference no: EM133128050

Question - Consider a project to supply Hamilton with 35,000 tonnes of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $495,000 and that variable costs should be $285 per tonne; accounting will depreciate the initial fixed asset investment at a CCA rate of 30 percent over the five-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let you have the contract at a selling price of $345 per tonne. The engineering department estimates you will need an initial net working capital investment of $450,000. You require a 13 percent return and face a marginal tax rate of 38 percent on this project. Assets will remain in the CCA class after the end of the project.

Required - What is the estimated operating cash flow for this project? The NPV? Should you pursue this project?