Question

Company ABC is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require require working capital upfront that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?

Sales Revenues 75,000

Operating costs (excluding dep) 25,000

Tax rate 35%

required working capital 15,000

initial investment in fixed assets 75,000

project cost of capital 10%

Answer 1

We see that the NPV is given as equal to=-75000-15000+15000/1.1^3+((75000-25000-75000/3)*(1-35%)+75000/3)/10%*(1-1/1.1^3)
=23852.36664