XYZ Corporation is considering an expansion project that will produce $90,000 worth of annual operating cash flows for the next four years. During the life of this project, the firm’s CFO expects inventory to increase by $35,000 and also expects accounts receivable to decrease by $10,000. The CFO believes that accounts payable will increase by $20,000. At the end of the project (year 4), the CFO assumes that net working capital will return to its normal level. The project requires the purchase of machinery at an initial cost of $70,000. Machinery installation costs are $10,000. This machine will be depreciated straight-line to a zero book value over the life of the project, but can be salvaged at the end of the project (year 4) creating a $30,000 before-tax cash flow. The company also owns land that will be used for the purpose of this expansion project. Luckily, the company bought this land pre-COVID, 3 years ago for only $25,000. At the time of purchase, the company paid $6,000 to level out the land. Today, the market value of this land is $215,000. What is the net present value of this project given a discount rate of 10% and tax rate of 34%? Show full work, including a cash flow table and NPV formula.
XYZ Corporation is considering an expansion project that will produce $90,000 worth of annual operating cash flows for the next four years. During the life of this project, the firm’s CFO expects inventory to increase by $35,000 and also expects accounts receivable to decrease by $10,000. The CFO believes that accounts payable will increase by $20,000. At the end of the project (year 4), the CFO assumes that net working capital will return to its normal level. The project requires the purchase of machinery at an initial cost of $70,000. Machinery installation costs are $10,000. This machine will be depreciated straight-line to a zero book value over the life of the project, but can be salvaged at the end of the project (year 4) creating a $30,000 before-tax cash flow. The company also owns land that will be used for the purpose of this expansion project. Luckily, the company bought this land pre-COVID, 3 years ago for only $25,000. At the time of purchase, the company paid $6,000 to level out the land. Today, the market value of this land is $215,000. What is the
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