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# OCF NPV Deciding Firms

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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?

#### 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?

\$2.49