Reference no: EM132389742

A company is evaluating a new 5-year project. The project will result in sales of $300,000 each year for the next 5 years. The costs of production will be $200,000 each year. The project requires an initial purchase of equipment worth $250,000. The equipment will be depreciated to zero using the straight line method over its life of fifive years. The project also requires net working capital of $25,000 for the fifirst 2 years. After that the net working capital requirement falls to $15,000 for years 3 to 5. Finally, no net working capital is needed in year 6. The corporate tax rate is 20% and the discount rate for the project is 12%. Assume all cash flflows for a year (including net working capital changes) occur at the end of year. What is the net present value of the project? If the fifirm has 100 shares, how does taking the project affect share value?