Description
Winker LLC is considering installing a new machine which is
expected to produce operating cash flows of $64,000 per year for 8 years. At
the beginning of the project, inventory will increase by $23,200, accounts receivables
will increase by $24,600, and accounts payable will increase by $17,700. At the
end of the project, net working capital will return to the level it was prior
to undertaking the new project, except for inventory, which will be written
down to zero. The initial cost of the machine is $276,000. The equipment will
be depreciated straight-line to a zero book value over the life of the project.
The equipment will be salvaged at the end of the project creating an after-tax
cash flow of $66,600. What is the net present value of the project given a
required return of 9.9 percent?
