Andronicus Corporation (AC) has the following jumbled information about an investment proposal: Revenues in each of years 1–4 = $37,000 Year 0 initial investment = $57,000 Inventory level = $18,500 in year 1, $20,700 in year 2, and $13,500 in year 3 Production costs = $12,100 in each of years 1–4 Salvage value = $13,700 in year 4 Depreciation = 100% immediate bonus depreciation Tax rate = 21% There is an additional 6-month lag for all cash flows after year 0. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project’s NPV? Assume that, if the project generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business.
Andronicus Corporation (AC) has the following jumbled information about an investment proposal: Revenues in each of years 1–4 = $37,000 Year 0 initial investment = $57,000 Inventory level = $18,500 in year 1, $20,700 in year 2, and $13,500 in year 3 Production costs = $12,100 in each of years 1–4 Salvage value = $13,700 in year 4 Depreciation = 100% immediate bonus depreciation Tax rate = 21% There is an additional 6-month lag for all cash flows after year 0. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow
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