Company X is analyzing a new investment project which has the following characteristics:
Unit price $5.00
Annual unit sales 40,000
Variable cost per unit $2.25
Investment into new machinery (t=0) $300,000
Investment in working capital $50,000 (fully recovered at the end of project)
Project life 6 years
Annual depreciation $40,000
Market value of machinery (t=6) 30,000
Tax rate 40 % (the same for profits and capital gains)
Required rate of return (WACC) 10 %
Marketing research expense $11,000 (the research was conducted earlier this year)
Questions:
Calculations in excel (show formulas ) , or manually
a) Calculate project cash flows: initial investment, operating cash flows for each year and terminal cash flow
b) Evaluate the net present value for the project
c) Is the project good as an investment?