313.8
8. You are considering the following project:
The project will last for 4 years. Each year you will have revenues of $230,000 and expenses of $100,000. The project will require new equipment valued at $80,000. This equipment will be depreciated to 0 using the straight-line method over a four-year life. Your tax rate is 33%. Working capital at the firm will have to rise to $20,000 from the current level of $10,000 immediately. It will go down to $15,000 in year 2 and to $10,000 in year 4. You will transfer one manager already working for you to the project and hire a new one at the same salary--$30,000 per year. You will also sell the equipment for $10,000 in year 4. Forecast all of the incremental cash flows for this project and compute its present value based on a discount rate of 10%. (22)