That sounds good,” you say.

That sounds good,” you say.

“Right,” says Mary. “You can use a WACC of 10% for the computation of the NPV and comparison for IRR.”

“I’ve got the information I need from Luke and James,” you say. “Does this look right to you? Here’s what they gave me,” you say, as you hand a sheet of paper to Mary.

“Let’s look at this now while we’re together,” she says.

The information you hand to Mary shows the following:

Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $25 million per year for five years
Assume gross margin of 60% (exclusive of depreciation)
Depreciation: Straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%
You continue your conversation.

“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”
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