What is the incremental npv of the add-on investment

Reference no: EM132195944

Question - Incremental NPV

Corpus Christi Partners has evaluated a major expansion that had a positive NPV of $4,500,000. Joe Whitman is proposing an "add-on" to the expansion. He believes investing an additional $500.000 in net working capital would increase the annual revenues by $140,000 per year and increase the annual cash operating expenses by $40,000 per year over the 10-year life of the project. The investment in net working capital would not affect depreciation schedules and the firm gets it back at the end of 10 years. The firm has a 30% tax rate and the project has a 10% cost of capital.

a. Assuming Joe's estimates are correct, what are the outlay, the annual net operating cash flow, and the after-tax salvage value for the "add-on" project?

b. What is the incremental NPV of the "add-on" investment in net working capital?

c. What is the combined NPV of the expansion and the "add-on" project?

Reference no: EM132195944

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