Howell Petroleum is considering a new project that complements its existing busi

Question

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $1.71 million. The marketing department predicts that sales related to the project will be $1.14 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 20 percent of sales. Howell also needs to add net working capital of $155,000 immediately. The additional net working capital will be recovered in full at the end of the project

Explanation / Answer

I apologize. I don't understand why it didn't work. But I can tell you for sure that the depreciation is used to verify what part of your income will be taxed. So it is properly calculated, so are the ATCF. I believe the issue is with the part of the net working capital that would be recovered by the end of the project's life.

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