Mills Mining is considering an expansion project. The proposed project has the following features: . The...

 

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Mills Mining is considering an expansion project. The proposed project has the following features: . The project has an initial cost of $500,000--this is also the amount which can be depreciated using the following depreciation schedule: Year 1 2 3 4 Depreciation Rate 33% 45 15 7 . If the project is undertaken, at t=0 the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. This net operating working capital will be proportional to the forecasted end-of-year sales and will be recovered at the end of the project's life (t = 4). . The company will sale 1000 more units per year as the result of the expansion. Price is $600 per unit whereas cost is $400 per unit. This project has not effect in fixed cost. • The average inflation rate during the life of the project is expected to be 3% per year. • The company will borrow $200,000 to cover 40% of the initial cost. Interest expenses will total $14,000 per year. The company's tax rate is 40 percent. . At t= 4, the project's economic life will be completed, but it will have a salvage value of $50,000. The project's WACC = 10 percent. • Mills Mining tax rate is 40%. Calculate NPV, IRR, MIRR and Payback period. Should Mills Mining go ahead with this project? Explain Mills Mining is considering an expansion project. The proposed project has the following features: . The project has an initial cost of $500,000--this is also the amount which can be depreciated using the following depreciation schedule: Year 1 2 3 4 Depreciation Rate 33% 45 15 7 . If the project is undertaken, at t=0 the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. This net operating working capital will be proportional to the forecasted end-of-year sales and will be recovered at the end of the project's life (t = 4). . The company will sale 1000 more units per year as the result of the expansion. Price is $600 per unit whereas cost is $400 per unit. This project has not effect in fixed cost. • The average inflation rate during the life of the project is expected to be 3% per year. • The company will borrow $200,000 to cover 40% of the initial cost. Interest expenses will total $14,000 per year. The company's tax rate is 40 percent. . At t= 4, the project's economic life will be completed, but it will have a salvage value of $50,000. The project's WACC = 10 percent. • Mills Mining tax rate is 40%. Calculate NPV, IRR, MIRR and Payback period. Should Mills Mining go ahead with this project? Explain

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NPV The net present value NPV is a measure of the profitability of a project calculated by subtracting the present value of the projects future cash outflows from the present value of its future cash ... View the full answer