Joanne Inc, is considering investing in a new project, based on information given:

a. Prepare The Total Cash Flow Projection.

b. Calculate the NPV and Payback Period of this project. (Preset time for Payback Period is 3,5 years).

c.  Should this new project be accepted or rejected?

Projected unit sale for a new project, as follows:

  Year             Unit Sales

   2022         125,000

   2023         135,000

   2024         140,000

   2025         145,000

   2026         150,000

  

  Year                             2022               2023            2024             2025               2026

 Fixed Cost ($)          1,100,000       1,100,000    1,100,000    1,100,000        1,100,000

 Variable Cost ($)      225                 225             235              240                  250

 Sales Price ($)          275                 275             280              285                  290

 

The cost of new equipment $8,000,000 and fee for consultant is $ 80,000. The equipment will be depreciated on a straight-line method over five years and the machine will have no salvage value at the end of the project. This project needs an initial working capital requirement of $ 455,000 and then rises to 10 percent of sales for each year. The relevant tax rate is 35 percent, with a 11 percent required rate of return.

Answer rating: 100% (QA)

To prepare the total cash flow projection we need to calculate the cash inflows and outflows for eac... View the full answer