You are starting a new project. This project would last 4 years. The following is the input information that you have collected: Building cost (1.3% in the first year and then 2.6% every year) $12,000,000 Equipment cost (MACRS 5 years) $8,000,000 Net operating working capital requirement (% of Sales) 10% First year sales (in units) 20,000 Growth rate in units sold 0% Sales price per unit $3,000 Variable cost per unit $2,100 Fixed costs $8,000,000 Market value of building at the end of year 4 7,500,000 Market value of equipment at the end of year 4 2,000,000 Tax rate 40% WACC 12% Inflation growth in sales price per year 2% Inflation growth in VC per unit per year 2% Inflation growth in fixed costs per year 1% What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
You are starting a new project. This project would last 4 years. The following is the input information that you have collected: Building cost (1.3% in the first year and then 2.6% every year) $12,000,000 Equipment cost (MACRS 5 years) $8,000,000 Net operating working capital requirement (% of Sales) 10% First year sales (in units) 20,000 Growth rate in units sold 0% Sales price per unit $3,000 Variable cost per unit $2,100 Fixed costs $8,000,000 Market value of building at the end of year 4 7,500,000 Market value of equipment at the end of year 4 2,000,000 Tax rate 40% WACC 12% Inflation growth in sales price per year 2% Inflation growth in VC per unit per year 2% Inflation growth in fixed costs per year 1% What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 10E
Related questions
Question
You are starting a new project. This project would last 4 years. The following is the input information that you have collected:
Building cost (1.3% in the first year and then 2.6% every year) |
$12,000,000 |
Equipment cost (MACRS 5 years) |
$8,000,000 |
Net operating working capital requirement (% of Sales) |
10% |
First year sales (in units) |
20,000 |
Growth rate in units sold |
0% |
Sales price per unit |
$3,000 |
Variable cost per unit |
$2,100 |
Fixed costs |
$8,000,000 |
Market value of building at the end of year 4 |
7,500,000 |
Market value of equipment at the end of year 4 |
2,000,000 |
Tax rate |
40% |
WACC |
12% |
Inflation growth in sales price per year |
2% |
Inflation growth in VC per unit per year |
2% |
Inflation growth in fixed costs per year |
1% |
- What is the
NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning