# OCF NPV Deciding Firms

a firm is deciding on a new project. Use the following information for the project evaluation and analysis

the initial costs are 450,000 for fixed assets. The fixed assets will be depreciated straight line to a zero-book value over the 3-year life of the project. The fixed assets have an estimated salvage value of $30,000 at the end of the project. The project also requires an additional $100,000 for net working capital to start the project. All the net working capital will be recouped at the end of the 3 years. The total project is expected to generate annual sales of $1,000,000(1,000 units at $1,000) and total costs of $550,000 per year. The firm's marginal tax rate is 40 percent. The required rate of return for this project is 20%

A) What is the Operating Cash Flow for each year of the project?

B) What is the after -tax salvage value at the end of this project

C) What are the Cash Flows from Assets each year for this project?

Year 0 1 2 3

OCF

NWC

NCS

CFFA

D) What is the NPV of this project?

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#### Solution Summary

A firm is deciding on a new project. Use the following information for the project evaluation and analysis

the initial costs are 450,000 for fixed assets. The fixed assets will be depreciated straight line to a zero-book value over the 3-year life of the project. The fixed assets have an estimated salvage value of $30,000 at the end of the project. The project also requires an additional $100,000 for net working capital to start the project. All the net working capital will be recouped at the end of the 3 years. The total project is expected to generate annual sales of $1,000,000(1,000 units at $1,000) and total costs of $550,000 per year. The firm's marginal tax rate is 40 percent. The required rate of return for this project is 20%

A) What is the Operating Cash Flow for each year of the project?

B) What is the after -tax salvage value at the end of this project

C) What are the Cash Flows from Assets each year for this project?

Year 0 1 2 3

OCF

NWC

NCS

CFFA

D) What is the NPV of this project?