Howell Petroleum is considering a new project that complements its existing busi

Question

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.84 million. The marketing department predicts that sales related to the project will be $2.54 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $190,000 immediately. The additional net working capital will be recovered in full at the end of the project

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Annual Cash Flow = (Sales

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