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The firm is evaluating an expansion project. The projected cash flows and other data are...

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Finance

The firm is evaluating an expansion project. The projected cash flows and other data are shown in the table: Project Data Project life 4 years Unit sales (per year) 1,200 Price (per unit) 50.00 Variable cost (per unit) 20.00 Fixed cost (per year) 3,000 Fixed capital investments 90,000 Fixed assets are depreciated straight-line over 4 years to book value of zero Net working capital investments 12,000 Salvage value of fixed assets at the end of three years 10,000 Marginal tax rate 20% Cost of capital 14%

1) Assuming that fixed capital investments and working capital investments are made at the start of the project, what is the initial cash outlay?

2) Determine the after-tax operating cash flows.

3) Assuming the recovery of the net working capital investment and the sale of fixed assets at the end of the projects life (end of year 4), calculate the terminal non-operating cash flow.

4) Calculate the net present value. Should the firm accept or reject the project?

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