Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish.
Fantastic news! We've Found the answer you've been seeking!
Question:
The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers).
But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5.
1) Based on this information and WACC of 5.42% in the first part of the question, Find the NPV of the project.
2) Identify the IRR of the project. Draw NPV vs r graph of the project. Will you accepr this project? Why?
Related Book For
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney
Posted Date: