Suppose a six-year project requires an initial capital investment of $425,000 and an initial net working capital investment of $50,000.The project is expected to provide operating revenue of $270,000 per year.The associated operating costs are expected to be $130,000 per year.The capital asset belongs to Class 9 and has a CCA rate of 30 percent.The asset is expected to sell for $40,000 when the project terminates.Assume the asset class remains open when the asset is sold.The firm's marginal tax rate is 40 percent and cost of capital is 8 percent.What impact would it have on the project's NPV if the cost of capital were 10 percent?

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CF₀ = $425,000 + $50,000 = $475,000 11ea8229_3477_ae4e_bbd8_5d42d12d7379_TB1726_00 11ea8229_3477_ae4f_bbd8_b9d7742a3848_TB1726_00 11ea8229_3477_d560_bbd8_0ddb077b52e1_TB1726_00 11ea8229_3477_d561_bbd8_45452b874df7_TB1726_00 PV(CFAT,K=8%)= $(270,000 - 130,000)*(1 - 40%)*PVAF(8%,6)= $388,321.89 PV(CFAT,k=10%)= $(270,000 - 130,000)*(1 - 40%)*PVAF(10%,6)= $365,841.90 NPV (k=8%)= -$475,000 + $121,279.73 + $56,715.27 + $388,321.89 = $91,316.89 NPV (k=10%)= -$475,000 + $114,930.86 + $50,802.65 + $365,841.90 = $56,575.41 % Change in NPV = 11ea8229_3477_d562_bbd8_b72f9e17513b_TB1726_11

Suppose a Six-Year Project Requires an Initial Capital Investment of $425,000