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What is the present value of the operating cash flows

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Bart's Fishing Gear is considering a project which will require the purchase of $1.4 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. Bart's expects to sell the equipment at the end of the project for 20% of its original cost. Gross profit from this project is estimated at $1.2 million per year. Net working capital equal to 20% of gross profit will be required to support the project over its life. All of the net working capital will be recovered at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. Assume all sales and costs occur at the end of each year. What is the present value of the operating cash flows (OCF)?

Reference no: EM132685115

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