A company has to decide whether to select a project or not. The following information are...

 

  

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A company has to decide whether to select a project or not. The following information are provided: • The cost of the capital expenditure involved is $55500 • Discount rate of the project is 12%, • Company will have to spend $8500 on net working capital that will be returned to him at the end of the project • He will depreciate his capital expenditure using straight line method over the project life. • The duration of the project is 5 years. • Tax rate of the project is 28% • His accountant has forecast a revenue of $ 21,000 annually • Further information is provided: Supplies expense $800 Supplies Salary expenses $1400 Unearned $1300 $6100 $ 1050 Rental expenses $950 $1500 Revenue Utilities Prepaid Rent • At the end of the project he will sell the equipment purchased initially [CAPEX] at 12500 • The salvage value of CAPEX is $7500 REQUIRED а) b) Calculate the initial investment Calculate each year cash flow Calculate the terminal value of the asset used Calculate the NPV d) e) Calculate the Profitability Index [PI] f) Calculate IRR of the project A company has to decide whether to select a project or not. The following information are provided: • The cost of the capital expenditure involved is $55500 • Discount rate of the project is 12%, • Company will have to spend $8500 on net working capital that will be returned to him at the end of the project • He will depreciate his capital expenditure using straight line method over the project life. • The duration of the project is 5 years. • Tax rate of the project is 28% • His accountant has forecast a revenue of $ 21,000 annually • Further information is provided: Supplies expense $800 Supplies Salary expenses $1400 Unearned $1300 $6100 $ 1050 Rental expenses $950 $1500 Revenue Utilities Prepaid Rent • At the end of the project he will sell the equipment purchased initially [CAPEX] at 12500 • The salvage value of CAPEX is $7500 REQUIRED а) b) Calculate the initial investment Calculate each year cash flow Calculate the terminal value of the asset used Calculate the NPV d) e) Calculate the Profitability Index [PI] f) Calculate IRR of the project