Margarite\'s Enterprises is considering a new project. The project will require
ID: 2679994 • Letter: M
Question
Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets,$160,000 for additional inventory and $35,000 for additional accounts receivable. Short-term debt is
expected to increase by $100,000 and long-term debt is expected to increase by $300,000. The project has a
5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project.
At the end of the project, the fixed assets can be sold for 25% of their original cost. The net working capital
returns to its original level at the end of the project. The project is expected to generate annual sales of
$554,000 and costs of $430,000. The tax rate is 35% and the required rate of return is 15%. Compute the
project
Explanation / Answer
Initial cash outflow = $325,000 + $160,000 + $35,000 - $100,000 = $420,000