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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!!!!!!!!!!!!!!!!!

Top Answer

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

NPV.xlsx

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...

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Other Answers

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

1 comment
  • the answer was wrong
    • JWalsh51
    • May 08, 2016 at 3:32pm

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