Business Finance question

timer Asked: May 6th, 2015

Question description

A production project will generate an expected operating cash flow of $50,000 per year for 4 years (years 1 – 4).  Undertaking the project will require an increase in the company’s net working capital (inventory) of $10,000 today (year 0).  At the end of the project (year 4), inventory will return to the original level.  The project would cost $150,000.  The weighted average cost of capital for the firm is 9%.  Sketch a timeline (explain what amount is considered in each year of the timeline) to illustrate the relevant cash flows.  What is the net present value of this project?

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