Reference no: EM13921126
Mideque, Inc., is considering a project to produce pens. It is estimated that the initial cost of the equipment, including transportation, installation, and so forth, will be $24,000. Mideque also estimates that the revenues (sales) each year over the fiveyear life of the project will be 15,000. The other yearly expense (e,g., cost of goods sold, wages and salaries, etc., will be $7,000. Mideque will finance $9,000 by loan with an interest rate of 15 percent year. The loan will be repaid at the rate of $2000 per year plus interest on the remaining balance each year. Mideque uses straightline depreciation, and the equipment will have no salvage value at the end of its life. Assume a corporateprofits tax rate of 50 percent.
1) Assume the working capital requirement will be $2,000 and that the IRS allows and investment tax credit of 1% for this kind of project. Also, assume that at the end of the life of this project, the company discovers that the equipment must be recycled for $3,000. Compute the initial investment.
A) 23,080
B) 24,080
C) 25,760
D) 26,000
2) Assume that this is a replacement projcet. The old equimpent can be sold for 10,000. It was bought 5 years ago for 22,000 and was assumed to last for 10 years. Compute the initial investment.
A) 24,000
B) 15,000
C) 9000
D) 13,500
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