You are asked to analyse the following project:
Initial net Working capital 10% of first year sales
Year 1 Year 2 Year 3 Year 4 Year 5
$4,000,000 $5,000,000 $5,000,000 $5,500,000 $5,000,000
Variable costs: 60% of sales
Fixed costs: $500,000
Annual depreciation charge for equipment: $400,000
Investment in net working capital: 10% of next year increase in sales.
Cost of capital: 10%
The project ends at the end of the 5th year. The net working capital is
recovered at the end of the project.
The net salvage value of assets at the end of the project is $1,500,000.
a. Estimate the project's cash flows
b. Using the payback period, the discounted payback period, the net present value and the profitability ratio, assess the project and present your conclusion.© BrainMass Inc. brainmass.com March 21, 2019, 6:07 pm ad1c9bdddf
The project's cash flows are depicted.