Net present value of project, Corporate Finance

Net present value of this project:

  1. The following I/S is based on the information associated with a new project. Answer the questions.

Projected Income Statements

 

 

Year

 

 

 

1

2

3

4

Sales

Variable Cost

Fixed Cost

Depreciation

EBIT

Taxes (40%)

Net income

9,000,000

5,000,000

2,500,000

500,000

1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

     1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

 1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

    1,000,000

400,000

600,000

 

 

 

 

 

 

1) We plan to invest $2,000,000 to get started. In four years, the new equipment will be sold for $100,000. However, its book value will be $0. The tax rate is 50%. Moreover, we can save NWC by $100,000 at the beginning of the life of this project. Fill the blanks in the following projected cash flow table.(60points)

Projected Cash Flows

 

 

 

Year

 

 

 

0

1

2

3

4

OCF

 

Changes in NWC

 

Capital spending

 

 

(      )           

 

-2,000,000                   

(          ) 

 

 

(          ) 

 

 

(          ) 

 

 

1,100,000           

 

(     )

 

(     )             

Total Cash Flow

 (      )               

(           )

(           )

(           )

(     )               

 

2) Figure out the net present value of this project if the required return is 25%. Based on the NPV, do you accept or reject this project? Based on the NPV, is the internal rate of return (IRR) for this project greater or less than the required return of 25%? (You don't have to figure out the IRR. Please think about the relationship between NPV and IRR)

Posted Date: 2/12/2013 1:15:51 AM | Location : United States







Related Discussions:- Net present value of project, Assignment Help, Ask Question on Net present value of project, Get Answer, Expert's Help, Net present value of project Discussions

Write discussion on Net present value of project
Your posts are moderated
Related Questions
A leveraged recap, in which Midco would issue debt and use the proceeds to repurchase shares. A Midco industry has 20 million shares outstanding with market price of $15 per share


Hi There; I’m looking for people who can complete three assignments for me. I’m looking for someone who can analyse three different empirical studies regarding stock or financial m

YOU ARE A CEO OF A SOFTWARE COMPANY WHICH HAS LIMITED ACCESS TO DEBT EQUITY MARKETS. YOUR FIRMS AVERAGE RETURN ON LAST YEAR PROJECTS IS 28% AND COST OF CAPITAL IS 12 %.Would Npv or

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoi

Question 1: i) Check the nature of the efficient markets hypothesis (EMH). ii) Describe how the different forms of efficiency can be tested. Support your answer with some e

cost of equity capital

The case company combines SKUs into product groups and product groups into assortment groups. The methods based on advance demand information (Methods 1-3) can therefore be on a pr

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6

problem 1 (a) (i) Define Corporate Governance. (ii) Show the ethical implications behind Corporate Governance. (b) (i) Why do organizations engage in social accounting?