Company X is analyzing a new investment project which has the following characteristics:

Unit price                                                                    $5.00

Annual unit sales                                                      40,000

Variable cost per unit                                             $2.25

Investment into new machinery (t=0)             $300,000

Investment in working capital                             $50,000                (fully recovered at the end of project)

Project life                                                                  6 years

Annual depreciation                                                $40,000

Market value of machinery (t=6)                       30,000

Tax rate                                                                        40 %      (the same for profits and capital gains)

Required rate of return (WACC)                         10 %

Marketing research expense                               $11,000 (the research was conducted earlier this year)

Questions:

Calculations in excel (show formulas ) , or manually

a) Calculate project cash flows: initial investment, operating cash flows for each year and terminal cash flow

b) Evaluate the net present value for the project

c) Is the project good as an investment?