Project Evaluation.    The following table presents sales forecasts
for Golden Gelt Giftware.  The unit price is $40.  The unit cost of
the giftware is $25.


Year    Unit Sales

1	22,000
2	30,000
3	                           14,000
4	  5,000
Thereafter                            0

             It is expected that the net working capital will amount
to 20 percent of sales in
             the following year.  For example the store will need
initial (Year 0) investment in
             working capital of 20 x 22,000 x $40 = 17,600,000.  Plant
and equipment
             necessary to establish the Giftware business will require
an additional investment
             of $200,000.  The investment will be depreciated using
MACRS and a 3-year
             life.  After 4 years the equipment will have an economic
and book value of zero.
             The firm?rate is 35 percent.  What is the net present
value of the project?
             The discount rate is 20 percent.

---

Request for Question Clarification by livioflores-ga on 22 Nov 2004 22:46 PST

At the following documents you will see the same problem with few
modifications (for example 25% of sales for net working capital
instead 20%, etc.) with tips and formulas to solve it, and one
solved!!

Take a look at these docs and let me know if they answer your question
in order to post this in the answer box and claim the prize:
MS PowerPoint document (see slides 19 & 20):
http://finance.sauder.ubc.ca/~bhamra/Courses/COMM397/corporate%20taxes.ppt

Adobe Acrobat Reader (pdf) document (see pages 10 and above):
http://www.sauder.ubc.ca/bcom/course_resources/comm397/freedman/docs/Lecture4.pdf


Regards.
livioflores-ga

Hi sumi15!!

Thank you for giving me the opportunity to answer your question. By
posting my comment in this answer box I am able to claim the prize, so
you must do not worry about it.

Now, here is the answer (reposted):

At the following documents you will see the same problem with few
modifications (for example 25% of sales for net working capital
instead 20%, etc.) with tips and formulas to solve it, and one
solved!!

Take a look at these docs and let me know if they answer your question
in order to post this in the answer box and claim the prize:
MS PowerPoint document (see slides 19 & 20):
http://finance.sauder.ubc.ca/~bhamra/Courses/COMM397/corporate%20taxes.ppt

Adobe Acrobat Reader (pdf) document (see pages 10 and above):
http://www.sauder.ubc.ca/bcom/course_resources/comm397/freedman/docs/Lecture4.pdf



As a bonus track I give you some links to very helpful documents where
you will find further (and more advanced) explanations and examples:

"WWWFinance-Project Evaluation: Campbell R. Harvey":
http://www.duke.edu/~charvey/Classes/ba350/project/project.htm

"Fundamental Principles of Project Evaluation": (ppt format)
http://www.uky.edu/~bjordan/BDJWeb/Fin445/chpt10.ppt

"Project Analysis and Evaluation": (ppt format)
http://www.apec.umn.edu/faculty/gpederso/PPTLectures/Lecture_10.ppt



I hope that this helps you with this very interesting topic. It was a
pleasure to work on your question, I will be here waiting for more
(:>), so do not hesitate to request to me by posting my nickname in
the subject of the question if you like me answering your question.

Regards.
livioflores-ga

The answer was of a greaty help. Thanks and would love if you could
help me whenever I need it. Thanks.

Hey, come on ...

This is SO easy!

Yeah right..................

Steph53

Sometimes your brain can't work on easy questions.

Thanks for guiding me through. I understodd 50% of it but this should
definitely help me in solving. Thanks a lot. If This won't help you
claim your prize then let me know as I am using this facility for the
first time and I would like to increase my bid to $5.00 and that is
all I can afford. Thanks for your kind help.