YVCF is in the process of evaluating the attractiveness of a new project. The project has an
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Question:
YVCF is in the process of evaluating the attractiveness of a new project. The project has an estimated life of four years. Revenues, costs and investments are as follows:
• Sales = 75,000 units/year, starting in year 1. No growth is expected.
• Price per unit: $200
• Initial capital expense for new equipment = $3,200,000
• Selling, general and administrative costs (per year) = $1,500,000
• Cost of production per unit = $100
What is the value of this project if the corporate tax rate is 35% and the cost of capital (ie, the discount rate) is 16%?
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