$$50,000$ per year, with additional annual cash costs of $$30,000.$ Grace's cost of capital is $12\%,$ and the company pays no taxes because of its location in a special economic zone.

Present Value of $$1$ table Present Value of Annuity of $$1$ table Future Value of $$1$ table Future Value of Annuity of $$1$ table

Read the requirements.

Requirement $1.$ Calculate the net present value and internal rate of return for this investment.

parentheses for a negative net present value.$)$

The net present value is

Requirements

Calculate the net present value and internal rate of return for this investment.

Assume the finance manager of Grace is unsure about the cash revenues

and costs. The revenues could be anywhere from $10\%$ higher to $10\%$ lower

than predicted. Assume cash costs are still $$30,000$ per year. What are NPV

and IRR at the high and low points for revenue?

The finance manager thinks that costs will vary with revenues, and if the

revenues are $10\%$ higher, the costs will be $7\%$ higher. If the revenues

are $10\%$ lower, the costs will be $10\%$ lower. Recalculate the NPV and IRR at

the high and low revenue points with this new cost information.

The finance manager has decided that the company should earn $2\%$ more

than the cost of capital on any project. Recalculate the original NPV in

requirement $1$ using the new discount rate and evaluate the investment

opportunity.

Discuss how the changes in assumptions have affected the decision to

expand.