## What is the npv of the project, Econometrics

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You are considering a new line of consumer products. You expect revenues of \$14 million in each of the next ten years, while expenses are half of revenues (all cash flows are assumed to be at year end).The project requires an initial investment of \$20 million at the beginning of the first year, which may bedepreciated for tax purposes using a straight-line depreciation over five years. The project requires workingcapital of \$8 million dollars at the beginning of the first year. \$5 million of the working capital is recovered atthe end of year 5, and the rest is recovered at the end of year 10. A feasibility study of the new product, whichhas already been completed, cost \$3 million. The project will utilize facilities that could be rented out for \$1million per year in years 1 through 10. The company's tax rate is 35 percent.

a) Calculate the after-tax operating cash flows for this project.

b) With a 10% WACC, what is the NPV of the project? Should you undertake it?

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