To set up the business, you will be required to purchase an equipment costing $40,000.00. You expect inventory will increase by $9,000 and accounts payable will increase by $5000.All the other working capital components will stay the same. So the change in net operating working capital is $4,000.00 at t= 0.
You expect to keep the company for 4 years and you expect to sell 7000.00 units of Pickles at a unit price of $5.00 and believe that both prices and quantity will remain the same. The fixed cost is $400 every year and variable costs will be $2.50 per unit. You plan to use the straight line depreciation and the equipment will be fully depreciated after 4 years. The salvage value is $5,000 and tax rate is 15%
What are the incremental cash flows for the 4 years.
If the WACC is 10%, find the NPV.