In analyzing a new potential business MacDonald Publishing's financial staff is estimating an initial capital expenditure of $6 million. This equipment will be depreciated according to the MACRS 3 year class life and will have a market value of $1 million after four years. If MacDonald goes ahead with the new business, inventories and accounts payable will increase by $300,000 each. The new business is expected to have an economic life of four years and is expected to generate annual sales of 5 million and incur operating costs (excluding depreciation) of 3 million annually. If the company's tax rate is 40 percent and the required return is 10 percent, calculate the expected NPV of the new business

Answer rating: 100% (QA)

To calculate the expected NPV of the new business we will need to calculate the cash flows for each ... View the full answer