The investment in net working capital

Reference no: EM13796852

A 5-year project requires an initial investment of $400,000 in fixed assets. It also requires an initial investment of $100,000 in net working capital and an additional investment of $20,000 at the end of year 2 in net working capital. The investment in net working capital is expected to be fully recovered at its book value at the end of the project. If accepted, it will be depreciated straight-line to zero over its five-year life. Annual sales and operating expenses are estimated to be $350,000 and $250,000 respectively. The project can be scrapped for $100,000 before tax. Should be the project accepted if the marginal tax rate and the appropriate discount rate are 35% and 10%, respectively? SUPPORT YOUR ANSWER WITH NECESSARY COMPUTATIONS.

Reference no: EM13796852

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