3. A gadget production factory will cost $1 million. It is expected to last four years....

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3. A gadget production factory will cost $1 million. It is expected to last four years. Depreciation is toward a $200,000 salvage value, which are recovered in the fourth year. For depreciation use the three years MACRS (below). Sales are expected to be $2.4 million with 65% cost of goods sold and $200,000 annual fixed cost in all operating years. Assuming 20% discount rate and 21% tax rate: a. Should the firm accept the project? b. The project will require a working capital commitment of $1.2 million in the initial year. Evaluate the project net present value, should the firm accept the project? *3 Year MACRS Year 1 Allowance 33 2 44 3 15 4 8 3. A gadget production factory will cost $1 million. It is expected to last four years. Depreciation is toward a $200,000 salvage value, which are recovered in the fourth year. For depreciation use the three years MACRS (below). Sales are expected to be $2.4 million with 65% cost of goods sold and $200,000 annual fixed cost in all operating years. Assuming 20% discount rate and 21% tax rate: a. Should the firm accept the project? b. The project will require a working capital commitment of $1.2 million in the initial year. Evaluate the project net present value, should the firm accept the project? *3 Year MACRS Year 1 Allowance 33 2 44 3 15 4 8

Answer rating: 100% (QA)

SOLUTION To determine whether the firm should accept the project we need to calculate the net presen... View the full answer