3. A gadget production factory will cost $1 million. It is expected to last four years....
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3. A gadget production factory will cost $1 million. It is expected to last four years. Depreciation is toward a $200,000 salvage value, which are recovered in the fourth year. For depreciation use the three years MACRS (below). Sales are expected to be $2.4 million with 65% cost of goods sold and $200,000 annual fixed cost in all operating years. Assuming 20% discount rate and 21% tax rate: a. Should the firm accept the project? b. The project will require a working capital commitment of $1.2 million in the initial year. Evaluate the project net present value, should the firm accept the project? *3 Year MACRS Year 1 Allowance 33 2 44 3 15 4 8 3. A gadget production factory will cost $1 million. It is expected to last four years. Depreciation is toward a $200,000 salvage value, which are recovered in the fourth year. For depreciation use the three years MACRS (below). Sales are expected to be $2.4 million with 65% cost of goods sold and $200,000 annual fixed cost in all operating years. Assuming 20% discount rate and 21% tax rate: a. Should the firm accept the project? b. The project will require a working capital commitment of $1.2 million in the initial year. Evaluate the project net present value, should the firm accept the project? *3 Year MACRS Year 1 Allowance 33 2 44 3 15 4 8
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SOLUTION To determine whether the firm should accept the project we need to calculate the net presen... View the full answer
Related Book For
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1133161646
7th Edition
Authors: Gary A. Porter, Curtis L. Norton
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