A project requires an initial investment of $350,000, to be depreciated straight-line over 3 years to a
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A project requires an initial investment of $350,000, to be depreciated straight-line over 3 years to a salvage value of $50,000 (you can assume that you will be able to cash in this amount at the end of year 3). Working capital requirements are 10% of next year’s sales. The project will generate $400,000 additional revenues in year 1, and these revenues will increase every year by a rate of 10% compared to the revenues the year before. Expenses will amount to 60% of revenues. The tax rate is 35%. The cost of capital amounts to 7%. Calculate the net present value of the project and show your calculations. Would you recommend the investment? Explain.
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Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
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