A company plans to invest in a new manufacturing project over the next 12 years. The project
Question:
A company plans to invest in a new manufacturing project over the next 12 years. The project will require an initial investment of $50,000, and an additional investment of $12,000 in Year 3 and Year 4. Starting in Year 2, the company will reduce their labour costs by $8,500 a year for the next 5 years, and $6000 a year for the next 4 years. At the end of the project, there will be a residual value of $17,000. If the company’s cost of capital is 10%, calculate the net present value for this project. (Show ALL Cash Flow entries in the table provided.) Should the company undertake the project? Explain your answer.
1. If the company’s cost of capital is 10%, calculate the net present value for this project. (Show ALL Cash Flow entries in the table provided.)
Year | Net Cash Flow |
2. Should the company undertake the project? Explain your anwser.
Financial and Managerial Accounting
ISBN: 978-1285078571
12th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac