What is the projected npv for the investment

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The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firm's CEO anticipates earnings before interest, taxes, depreciation (EBITDA) from cost savings equal to $200, 000 for the first year of the operation of the center; over the next four years, the estimate that this amount will grow at the rate of 5% per year. The system will require an initial investment of $800,000 that will be depreciated over the a five year period using the straight-line depreciation of $160,000 per year and a zero estimated salvage value.

a) Calculate the project's annual free cash flow (FCF) for each of the next five years, where the firm's tax rate is 35%.

b) If the cost of capital for the project is 12%, what is the projected NPV for the investment?

c) What is the minimum year 1 dollars savings (i.e., EBITDA) required to produce a breakeven NPV = 0?

Reference no: EM13546351

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