S Suppose we think we can sell 50,000 cans of shark attractant per year at a price of $4 per can. It costs us about $2.50 per can to produce, and a new product such as this one typically

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S Suppose we think we can sell 50,000 cans of shark attractant per year at a price of $4 per can. It costs us about $2.50 per can to produce, and a new product such as this one typically has only a three-year life. We require a 20% return on new products. • Fixed costs for the project, including such things as rent on the production facility, will run $17,430 per year . We will need to invest a total of $90,000 in manufacturing equipment; assume this $90,000 will be 100% depreciated over the three-year life of the project • Cost of removing equipment will roughly equal its actual value in three years, so it will be essentially worthless on a market value basis as well • Project will require an initial $20,000 investment in net working capital • The tax rate is 21%. Question 1: Using the shark attractant example in our lecture, calculate the project's (a) modified internal rate of return (b) payback period (c) discounted payback period Do these methods also suggest the same decision as NPV and IRR? S Suppose we think we can sell 50,000 cans of shark attractant per year at a price of $4 per can. It costs us about $2.50 per can to produce, and a new product such as this one typically has only a three-year life. We require a 20% return on new products. • Fixed costs for the project, including such things as rent on the production facility, will run $17,430 per year . We will need to invest a total of $90,000 in manufacturing equipment; assume this $90,000 will be 100% depreciated over the three-year life of the project • Cost of removing equipment will roughly equal its actual value in three years, so it will be essentially worthless on a market value basis as well • Project will require an initial $20,000 investment in net working capital • The tax rate is 21%. Question 1: Using the shark attractant example in our lecture, calculate the project's (a) modified internal rate of return (b) payback period (c) discounted payback period Do these methods also suggest the same decision as NPV and IRR? S Suppose we think we can sell 50,000 cans of shark attractant per year at a price of $4 per can. It costs us about $2.50 per can to produce, and a new product such as this one typically has only a three-year life. We require a 20% return on new products. • Fixed costs for the project, including such things as rent on the production facility, will run $17,430 per year . We will need to invest a total of $90,000 in manufacturing equipment; assume this $90,000 will be 100% depreciated over the three-year life of the project • Cost of removing equipment will roughly equal its actual value in three years, so it will be essentially worthless on a market value basis as well • Project will require an initial $20,000 investment in net working capital • The tax rate is 21%. Question 1: Using the shark attractant example in our lecture, calculate the project's (a) modified internal rate of return (b) payback period (c) discounted payback period Do these methods also suggest the same decision as NPV and IRR?

• Expert Answer

SOLUTION To calculate the modified internal rate of return MIRR payback period and discounted payback period for the shark attractant project we need to first calculate the project s cash flows We can View the full answer