Question: Question 1: (20 marks) Winter Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $500,000. The fixed asset

Question 1: (20 marks)

Winter Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $500,000. The fixed asset will be depreciated straight-line to zero over its five-year tax life, after which time it will be expected to have the salvage value of $50,000. The project is estimated to generate $200,000 in annual sales, with costs of $70,000. If the tax rate is 30 percent. The required return on the project is 15 percent.

(a)

What is the projects NPV?

(10 marks)

(b)

Identify with explanations the THREE factors that may affect the result of NPV in the above situation.

(10 marks)

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