Question

Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $67,000 per year for 8 years. At the beginning of the project, inventory will decrease by $25,600, accounts receivables will increase by $25,800, and accounts payable will increase by $18,600. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $285,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $72,000. What is the net present value of this project given a required return of 11.2 percent?

Answer 1

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proiects (Autosav File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut Ea Copy AutoSum General A A Wrap Text Calibri 11 Fill A Merge & Center Insert Delete Format Paste BIU S % Conditional Format Cell Sort & Find & 2 Clear Format Painter er Select Formatting ble Styles Clipboard Font Alignment Number Shules Cells Editing T33 N O R S T U W X Y 17 NOTE (1/r)*(1-(1/(1+r)An)) (1/0.112)*(1-(1/(1+0.112) ^8) ) (1/(1+r)An) (1/(1+0.112)^8) 18 PVIFA @11.2%, 8 YEARS = 19 OCF = 67000.00 5.109624 -2560025800 18600 20 NET WORKING CAPITAL = PVIF @11.2%, 8 YEARS = 21 -18400 0.427722 22 23 24 NPV= Present value of OCFS PV OF WORKING CAPITAL PV OF SALVAGE VALUE AFTER TAX -(INVESTMENT+ WORKING CAPITAL) (67000 x PVIFA @11.2%,8 years)((72000-18400) X PVIF @11.2%,8 YEARS) 285000 + 18400 25 NPV= 26 NPV= (67000 x 5.109624) + ((72000-18400) * 0.427722) - 28500018400 NPV= 98670.71 27 28 29 30 31 32 33 34 35 STats NPVBETA LEVERED OPTION TO WAIT 14 H RATIOCASHBUDGET wacc BOND STEIN indiffEPS EBIT REPLACEMENT BASE CASE SENSITIVITY Sheet1 pretax Shi Sheet2 130 % Re erences W 05:23 TENG m 5-06-2019