Question: The Shome Corporation is considering a new project that involves the introdoction of a new product. The firm in in the 34 percent marginal tax
The Shome Corporation is considering a new project that involves the introdoction of a new product. The firm in in the 34 percent marginal tax braeket and has a 15 percent required rate of retam or discount rate for new inveatments. This project is expected to last fivey ears, and then, because this is somenhat of a fad project, it will be Ierminatod. Given the following information, determine the aet eash flowy associated with the project and the project's NPV, profitability index, and internal rate of return. Apply the appropriate decision criteria. Cost of new plaat and equipment: 56,900,000 Shipping and installation costs: $100,000 Sales price per unit: $250/ unit in Years 1-4,5200/unit in Year 5 Variablecost per anit; 5130/ anit Annual fixed costs: 5300,000 Working capital requircments: There will be an initial working capital requirement of $100,000 just to get production started. For cach year, the total isveatment in net working capital will be equal to 10 pereent of the dollar value of sales for that yeat. Thus, the investment in working capital will increase during Years I through 3 , then docrease in Year 4. Finally, all working capital is liquidated at the termination of the project at the end of Year $. The depreciation method: Use the simplified straight-line method over five years. It is acsumed that the plant and equipment will have no salvage value after five years. Complete the steps below using cell references to given data ar previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula acress a rew or down a column, an absolete cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the ase of that fanction. Do not type in numerical data into a cell or functfon. Instead, make a reference to the cell in which the data is found. Make your computations ealy in the greea cells highlighted below. In all eases, unless otherwise directed, use the earliest appearance of the data in your formulas, us ually the Given Data
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