Question

Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,251 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $307. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%. Year Sales $11,768 $12,479 $13,386 $10,743 Costs 2,179 2,938 3,207 1,179 NWC Requirements 324 352 218 0 What is the project's NPV? (Round answer to 2 decimal places. Do not round intermediate calculations).

Answer 1

D3 : x N r fi =23251*0.3333 A B C D E F G H I J K L M Depreciati Net Depreciati Working Net After PVIF@12 1 Year Revenue Costs on L PBT Tax@35% income on After-tax OCF | capital Investment Tax cash 20 $ (307) $ (23,251) $ (23,558) 1.000 $ 3 1 $ 11,768 $ 2,179 $ 7,750 $ 1,839 $ 644 $ 1,196 $ 7,750 $ 8,945 $ (324) $ 8,621 0.893 $ 2 $ 12,479 $ 2,938 $ 10,335 $ (794) $ (278) $ (516) $ 10,335 $ 9,819 $ (352) $ 9,467 0.797 $ 5 3 $ 13,386 $ 3,207 $ 3,443 $ 6,736 $ 2,357 $ 4,378 $ 3,443 $ 7,822 $ (218) 7,604 0.712 $ 4 $ 10,743 $ 1,179 $ 1,723 $ 7,841 $ 2,744 $ 5,097 $ 1,723 $ 6,820 $ 1,201 8,021 0.636 $ Present value (23,558.00) 7,697.50 7,546.97 5,412.07 5,097.25 Net present value $ 2,195.78

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