Question

Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.7 million. The marketing department predicts that sales related to the project will be $2.83 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $210,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 22 percent and the required return for the project is 13 percent. What is the value of the NPV for this project?

Answer 1