3. Your company is planning to make an investment into a new project for which turn-key...

 

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3. Your company is planning to make an investment into a new project for which turn-key cost of machinery and equipment is $1,250,000, net working capital investment is 360,000 and 8 years of life is anticipated. Straight line depreciation will be used for simplicity purposes. Estimated sales are $960,000, gross margin is 60% of sales, operational expenses other than depreciation is $175,000. An additional investment of $300,000for machinery and equipment is planned to be made in the 5th year. Corporate tax rate is 25%, cost of capital is 12%. Should this investment be made? Use FCF and NPV for decision making. 3. Your company is planning to make an investment into a new project for which turn-key cost of machinery and equipment is $1,250,000, net working capital investment is 360,000 and 8 years of life is anticipated. Straight line depreciation will be used for simplicity purposes. Estimated sales are $960,000, gross margin is 60% of sales, operational expenses other than depreciation is $175,000. An additional investment of $300,000for machinery and equipment is planned to be made in the 5th year. Corporate tax rate is 25%, cost of capital is 12%. Should this investment be made? Use FCF and NPV for decision making.

Answer rating: 100% (QA)

To determine whether the investment should be made we can calculate the Free Cash Flows FCF and Net Present Value NPV of the project First lets calcul... View the full answer