Consider a project that requires an initial investment in fixed assets of $3,000. If the project is undertaken, the firm will have to increase its working capital by $500 in period zero and operatations in years one and two require a minimum working capital of $700. The firm will operate for three years and is expected to have annual revenues of $3,100 and annual operating costs of $1,100. The firm depreciates its assets straight line over three years toward the salvage value of zero, pays 34% tax, and has 14% cost of capital.
What are the NPV, EVAs and MVA of the project?
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