The company will have to make Capital Investments, Working Capital investments, and generate Cash Flows from Operating the new project. The Equipment required for the project will cost $3,000,000 today, will last for three years (the length of the project), and is estimated at the time of purchase to sell for $300,000 at the end of its life. Revenue is projected at $5.0M in the first year, $5.3M in the second year, $5.6M in the third year, $5.9 in the fourth year, $6.0M in the fifth year, and $5.0M in the final year. The investment in Net Working Capital is $300,000 initially, with the year-end values at 10% of that year's sales. The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 10%. Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year three ?
The company will have to make Capital Investments, Working Capital investments, and
generate Cash Flows from Operating the new project. The Equipment required for the
project will cost $3,000,000 today, will last for three years (the length of the project),
and is estimated at the time of purchase to sell for $300,000 at the end of its life.
Revenue is projected at $5.0M in the first year, $5.3M in the second year, $5.6M in the third year, $5.9 in the fourth year, $6.0M in the fifth year, and $5.0M in the final year. The investment in Net Working Capital is $300,000 initially, with the year-end values at 10% of that year's sales.
The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 10%.
Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year three ?
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