Jose Garcia is thinking of importing caviar to sell to restaurants and specialty stores. He estimates that this venture will require an initial outlay of $300.000 to buy a refrigerated storage unit, which can be depreciated (straight-line) to salvage value of $50,000 in eight years. In addition, Mr. Garcia estimates that he will need S40.000 in working capital during the eight years of the project. Annual sales are estimated to be $110,000 and annual expenses of $20,000. Jos? estimates that the marginal tax rate will 25% during the lifetime of the project. a. What is the initial outlay associated with starting the business? b. What is the annual cash flow from operations? c. What will be the terminal cash flow in year 8? d. What is the payback period for this project? e.f Jos? requires a 16% RRR to make this investment, should she make the investment? f. What is the project's IRR? Should the project be accepted using IRR criterion? 

Answer rating: 100% (QA)

a The initial outlay associated with starting the business is the sum of the cost of the refrigerated storage unit and the working capital Cost of the refrigerated storage unit 300000 Working capital ... View the full answer