Posted by Dan on .
You're thinking of investing in a automation project to reduce cost of production.
-Investment in Fixed Assets: $900,000 at t=0; salvage value of $300,000 at t=6; straight line deprectiation over 6 years (assume book value is 0 at t=6)
-Investement in NWC: $250,000 at t=0; no recovery value.
-Project is expected to save (pre-tax) $350,000 per year for the next 6 years.
-Discount rate is 10%; tax rate is 30%
1) what are operating cash flows of the project?
2) would you invest in the project? Use NPV to answer.