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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?

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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?

    $2.19