The Taylor Mountain Uranium Company currently has annual revenues of Sh.1.2 million and annual expenses exclusive of depreciation of Sh.700,000. Depreciation amounts to Sh.200,000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firm’s marginal tax rate is 40 percent. A new high-speed processing unit costing Sh.1.2 million is being considered as a potential investment designed to increase the firm's output capacity. This new piece of equipment will have an estimated usable life of 10 years and a Sh.0 estimated salvage value. If the processing unit is bought, Taylor's annual revenues are expected to increase to Sh.1.6 million, and annual expenses exclusive of depreciation will increase to Sh.900,000. Annual depreciation will increase to Sh.320,000. Assume that no increase in net working capital will be required as a result of this project. a. Calculate the processing unit's net present value, using a 12 percent required return. b. Should Taylor accept the project? 7 c. How many internal rates of return does the processing unit project have? Why? d. Calculate the processing unit's internal rate of return.
The Taylor Mountain Uranium Company currently has annual revenues of Sh.1.2 million
and annual expenses exclusive of
Sh.200,000 per year. These figures are expected to remain constant for the foreseeable future
(at least 15 years). The firm’s marginal tax rate is 40 percent.
A new high-speed
potential investment designed to increase the firm's output capacity. This new piece of
equipment will have an estimated usable life of 10 years and a Sh.0 estimated salvage value.
If the processing unit is bought, Taylor's annual revenues are expected to increase to Sh.1.6
million, and annual expenses exclusive of depreciation will increase to Sh.900,000. Annual
depreciation will increase to Sh.320,000. Assume that no increase in net working capital will
be required as a result of this project.
a. Calculate the processing unit's
b. Should Taylor accept the project?
7
c. How many internal
d. Calculate the processing unit's
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