Suppose you are analyzing a project with the following pro-forma parameters:
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Initial Investment: $6.2 million
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Initial Working Capital: $785,000
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Working Capital Recovery: 100%
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OCF 1: $1.1 million
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OCF 2-4: $2.7 million
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OCF 5: $750,000
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Terminal Salvage Value: $0
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Flotatino Cost %: 6%
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Depreciation: Straight line to Zero over 5 years.
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Marginal Tax Rate: 40%
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Required Return: 12%
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Project Life: 5 years
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Use the above pro-forma data to develop an initial estimate of Net Present Value. Comment in any way you feel is appropriate based upon your findings. ***After you have calculated the initial estimate of NPV, suppose further analysis yeilds the following facts:
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If you sell out of the project at the end of year...
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1
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2
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3
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4
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5
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Your Pre-Tax Salvage Value is...
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$5.1 million
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$3.5 million
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$3.4 million
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$450,000
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$0
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Assuming all other facts are unchanged, how does this change your recommendations or findings from task one?
Please give support in the form of numbers, charts, graphs, or any other method you feel best conveys your findings based upon this new data.