Reference no: EM132522920

Large Manufacturing, Inc. is considering investing in some new equipment whose data are shown below. The equipment has a 3-year class life and will be depreciated by the MACRS depreciation system, and it will have a positive pre-tax salvage value at the end of Year 3, when the project will be closed down. Also, some new working capital will be required, but it will be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 3-year life.

Question 1: What is the project's Initial Cash Outlay at time 0?

Question 2: What is the Year 1 Net Operating Cash Flow?

Question 3: What is the Terminal Year Non-Operating Cash Flow at the end of Year 3?

Question 4: What is the project's NPV?

WACC                                                                         11.0%

Net investment in fixed assets (depreciable basis)             $70,000

Required new working capital                                        $10,000

Sales revenues, each year                                       $95,000

Cash operating costs excl. depr'n, each year                 $30,000

Expected pretax salvage value                                    $9,000

Tax rate                                                                 30.0%