IronEx Inc. is considering investing in a new component that requires a $100,000 investment, as...
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IronEx Inc. is considering investing in a new component that requires a $100,000 investment, as well as additional net working capital. The investment is expected to provide cash flows over the next five years. The anticipated project free cash flows for the investment are found in the table below:
Year 2016 2014 2015 2017 2018 2019 Net Operating Income Less: Taxes NOPAT OPlus: Depreciation Less: CAPEX Less: Increase in net working capital Project Free Cash Flow 20 000.00 22 000.00 24 100.00 26 305.00 28 620.25 -6 000.00 -6600.00 -7230.00 -7 891.50 -8 586.08 14 000.00 15 400.00 16 870.00 18 413.50 20 034.18 20 000.00 20 000.00 20 000.00 20 000.00 20 000.000 0.00 0.00 0.00 0.00 0.00 -250.00 -262.50 -275.63 -289.41 6 077.53 33 750.00 35 137.50 36 594.38 38 124.09 46 111.71 -100 000.00 -5 000.00 - 105 000.00 Invested Capital (beginning of year) 105 000.00 85 250.00 65512.50 45 788.13 26077.54 205 000.00 The project cost of capital is 9%. a) Calculate the project's annual economic profit (EVA) using the NOPAT and invested capital figures found in the table. b) Show that the project's net present value (NPV) equals the present value of the total economic profit
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