As the finance manager of a company, you are presented with the following project. The company is
Question:
As the finance manager of a company, you are presented with the following project. The company is considering the purchase of a new piece of equipment which would cost $210,000. This equipment will have a five-year useful life and have a salvage value of $10,000 at the end of the five-year period. Assume straight-line depreciation It is estimated that the new equipment will be able to produce 10,000 shelves per year. the allocated overhead for running the equipment will be $20,000 per year. they can sell the shelves for $25 each. the cost of sales is $15 per shelf. Net Working Capital requirements for the project are as follows:
Year 0 = $10,000
Year 1 = $15,000
Year 2 = $17,000
Year 3 = $15,000
Year 4 = $10,000
The company has a 30% marginal tax rate and a required rate of return of 15%. Would you accept this project (support your answer with NPV/IRR)?
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham