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# Answer to Question #159409 in Finance for Kaif

Question #159409

PARCO is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to the project will be$2.35 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. PARCO also needs to add net working capital of $150,000 immediately. The additional net working capital will be recovered in full at the end of the projectâ€™s life. The corporate tax rate is 30 percent. The required rate of return for PARCO is 13 percent. Should PARCO proceed with the project? 1 Expert's answer 2021-02-01T07:48:13-0500 Net cash flow: "2.35*0.75*0.7=1.23375"$ million

"PV=-(3.9+0.15)+\\frac{1.23375}{1+0.13}+\\frac{1.23375}{(1+0.13)^2}+\\frac{1.23375}{(1+0.13)^3}+\\frac{1.23375}{(1+0.13)^4}+\\frac{0.15}{1.13^4}=-0.288248" \$ million

No, since the project is unprofitable

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