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# A new project involves the purchase of a \$9000 food processing machine. The machine would be depreciated on a straight-line basis over its 3-year...

A new project involves the purchase of a \$9000 food processing machine.  The machine would be depreciated on a straight-line basis over its 3-year useful life to a book value of \$300.  At the end of the life of the project (at the year 3 point), the machine will be sold for an estimated \$800.  The project will cause an increase in Sales of \$6000 in each of years 1 through 3.  It is also expected to enhance efficiencies andreduceoperating expenses by \$1000 in each of years 1 through 3.  The project will require an increase in Accounts Receivable of \$1500 and an increase in Accounts Payable of \$1600 up front.  The project's impact on these accounts is expected to disappear at project end (in year 3).  The firm's marginal tax rate is 40%, and its WACC is 12%.  The NPV of this project is \$_________.

I am confused on how to set up the expenses!!!!!!!!!!!!!!!!!

Check the attached Excel file for detailed solution.  Year Cash Flow... View the full answer

Initial Investment =
Depriciation based on Straight-line basis to a Book Value = 300 9000 Depriciation = (9000-300)/3 2900 Net Working Capital =
Increase In Accounts Receivables =
Increase In...

NPV =PVof Post Tax cash flow in sales &amp; Operating expenses + PV of Depreciation Tax shield + PV... View the full answer

1 comment
• JWalsh51
• May 08, 2016 at 3:32pm

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