Your firm is considering investing in a project the details of which are given below:
%u2022 A new machine costing $10000 is required.
%u2022 The project also requires an initial net working capital of $1000 which will be recovered at the end of the project life (year 3)
%u2022 The new machine is being depreciated using the 7-year MACRS rates (Rates are 14% 25% 17% 13% 9% 9% 9% 4%).
%u2022 The new machine can be sold at the end of the project (end of year 3) for 5000.
%u2022 The project will generate earnings before depreciation interest and taxes (EBDIT) of $4000 a year over the next 3 years.
%u2022 The firm%u2019s tax rate is 40%. A. What is the non-operating cash flow in year 3 ? (include calculation)
B. What is the NPV of the prject at 10 percent (include calculation). Should the firm invest in the project?