Final interest rate George Muoz, owner of Muoz Meat Products (MMP), is interested in a new project that will produce specialty microwave meat products. The project is estimated to last 5 years before MMP's competitors will eliminate the competitive advantage. MMP's microwave meat project is expected to generate pre-tax revenues of $1,200,000 and to incur pre-tax expenses of $300,000 in the first year of operation. These revenues and expenses are expected to grow at 3% per year during the life of the project. The initial cost of the machinery for the project is $2,200,000, but it is expected that this machinery can be sold for $550,000 at the end of the project. Meat inventories will have to be increased immediately by $450,000 and will have to remain at the higher level until the project is completed, at which time they will return to pre-project levels. It is projected that while the MMPs microwave meat project is operating, a side effect is expected to be a decrease in the sales of MMP's regular meat products by $350,000 per year. Assume MMP's corporate tax rate is 40%, and their cost of capital is 17%. Compute the NPV of the new project, and then interpret the NPV indicating whether MMP should pursue the new project

Answer rating: 100% (QA)

Net Present Value NPV Calculation for Muoz Meat Products MMP project Year PreTax Revenue Millions PreTax Expenses Millions PreTax Operating Profit Mil... View the full answer