Suppose a five-year project requires an initial capital investment of $600,000 and an initial net working capital investment of $30,000.The project is expected to provide operating revenue of $400,000 per year.The associated operating costs are expected to be $175,000 per year.The capital asset belongs to Class 7 and has a CCA rate of 15 percent.The asset is expected to sell for $168,000 when the project terminates.Assume the asset class remains open after the project ends.The firm's marginal tax rate is 40 percent and cost of capital is 10 percent.What impact would it have on the project's NPV if the operating revenue falls by 5 percent?

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CF₀ = $600,000 + $30,000 = $630,000 11ea8229_3477_6028_bbd8_e1a24952e1e9_TB1726_00 11ea8229_3477_6029_bbd8_75df05aa1328_TB1726_00 PV(CFAT,Rev=$400,000)= $(400,000 - 175,000)*(1 - 40%)*PVAF(10%,5) = $511,756.21 PV(CFAT,Rev=$380,000)= $(380,000 - 175,000)*(1 - 40%)*PVAF(10%,5) = $466,266.77 NPV (Rev=$400,000)= -$630,000 + $112,419 + $122,942.42 + $511,756.21 = $117,117.63 NPV (Rev=$380,000)= -$630,000 + $112,419 + $122,942.42 + $466,266.77 = $71,628.19 % Change in NPV = 11ea8229_3477_602a_bbd8_45e56dcbc5c7_TB1726_11

Suppose a Five-Year Project Requires an Initial Capital Investment of $600,000