What is the present value of the operating cash flows

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Question - Bart's Fishing Gear is considering a project which will require the purchase of $1.4 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. Bart's expects to sell the equipment at the end of the project for 20% of its original cost. Gross profit from this project is estimated at $1.2 million per year. Net working capital equal to 20% of gross profit will be required to support the project over its life. All of the net working capital will be recovered at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%.  Assume all sales and costs occur at the end of each year. What is the present value of the operating cash flows (OCF)?

A. 6,020,000

B. 860,000

C. 2,056,303

D. 792,000

E. 3,687,942

Reference no: EM132918451

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