Foley Systems is considering a new investment whose data are shown below. The eq
ID: 2665575 • Letter: F
Question
Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated on a straight line basis over the project's 3-year life, would have a zero salvage value and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?(Hint: cash flows are constant in years 1-3)
WACC = 10%
Net investment in fixed assets(basis) = $75,000
Required new working capital = $15,000
Straight line depr rate = 33.333%
Sales revenues each year = $75,000
Operating costs(excl depr) each year = $25,000
Tax rate = 35%
Explanation / Answer
Annual CF = $75,000-$25,000-$25,000-$15,000 = $10,000-$3,500+$25,000 = $31,500 NPV = -$75,000+$78,335.84 = $3,335.84