i. Calculate the changes in Net Working Capital in each year of the CoolCar’s project.
[5 marks]
ii. At the end of this 3-year project, what is the book value of the producing equipment and what is the after-tax gain on the sale of the equipment?
[5 marks]
iii. Calculate the NPV of this 3-year project.
[25 marks]
iv. An alternative project plan is to produce the new electric cars for 4 years (i.e. one-year extension to the original plan). The demand for the electric cars in year 4 is expected to shrink compared to the demand in year 3. Assume the demand in year 4 is the same as that in year 1, i.e. 1,500 cars. The residual value of the producing equipment will be zero at the end of year 4. The straight-line depreciation rule applied to the 4-year period.
Please calculate the NPV of this alternative project. Would you recommend the 3-year project or the 4-year project?
[15 marks]
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