2. Foley Systems is considering a new investment whose data are shown below. The

Question

2. Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zerco salvage value, and would require additional net operating working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows from operations are constant in Years 1 to 3.) WACC Net investment in fixed assets (basis) Required net operating working capital Straight-line depreciation rate Annual sales revenues Annual operating costs (excl. depreciation) Tax rate 10.0% $75,000 $15,000 33.333% $75,000 S25,000 35.0%

Explanation / Answer

NPV:

workings:

Particulars Amount Present value of annual cashflows       102,582.56 Present value of terminal cashflows         11,269.65 Present value of initial cashflows       (90,000.00) Net present value         23,852.21

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