Biru Bookstores is considering a major expansion of its business. The details of the proposed expansion...
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Biru Bookstores is considering a major expansion of its business. The details of the proposed expansion project are summarized below: • The company will have to purchase RM 400,000 in equipment at y=0. • The project will have an economic life of four years. • The cost can be depreciated on a MACRS 3-year basis, 33% in year 1, 45% in year 2, 15% in year 3 an 7% in year 4. • At y=0, the project requires inventories increase by RM40,000 and accounts payable increase by RM10,000. The change in Net Operating Working Capital is expected to be fully recovered at y=4. • Salvage value at year 4 is expected to be RM0 The company forecasts that the project will generate RM800,000 in sales the first 2 years (y=1 and 2) and RM500,000 in sales during the last two years (y=3 and 4). • Each year the project's operating costs excluding depreciation is expected to be 60% of sales revenue. • The company tax rate is 28%. • The project's cost of capital is 8%. Required: a) Calculate the project initial outla msdoc-iframe b) What is the NPV of the proposed project? c) Should Biru Bookstores proceed with the project? Biru Bookstores is considering a major expansion of its business. The details of the proposed expansion project are summarized below: • The company will have to purchase RM 400,000 in equipment at y=0. • The project will have an economic life of four years. • The cost can be depreciated on a MACRS 3-year basis, 33% in year 1, 45% in year 2, 15% in year 3 an 7% in year 4. • At y=0, the project requires inventories increase by RM40,000 and accounts payable increase by RM10,000. The change in Net Operating Working Capital is expected to be fully recovered at y=4. • Salvage value at year 4 is expected to be RM0 The company forecasts that the project will generate RM800,000 in sales the first 2 years (y=1 and 2) and RM500,000 in sales during the last two years (y=3 and 4). • Each year the project's operating costs excluding depreciation is expected to be 60% of sales revenue. • The company tax rate is 28%. • The project's cost of capital is 8%. Required: a) Calculate the project initial outla msdoc-iframe b) What is the NPV of the proposed project? c) Should Biru Bookstores proceed with the project?
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Related Book For
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso
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