Compute the estimated project cash flows

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Reference no: EM131327425

Steele-Greene Inc. (SGI) is considering a project to reduce costs in the production of engineered wood products. New equipment for the project would cost $280,000. Installation and setup costs would cost an additional $20,000. The equipment would be depreciated over a 5-year MACRS recovery period and is expected to have a $20,000 salvage value in five years. SGI estimates that the new project would reduce operating expenses by $95,000 in the first year of operation, and that these savings would increase at the expected inflation rate of 3% per year. No additional increases in net operating working capital are expected. Assume SGI’s marginal tax rate is 35% and the project cost of capital is 12%. Compute the estimated project cash flows (after-tax) over the 5-year life of the project. Compute the project NPV and determine whether the project should be accepted or not.

Reference no: EM131327425

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