Posted by **Dan** on Saturday, June 19, 2010 at 5:50pm.

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.

Thanks!

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