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
the departure from Modigliani-Miller proposition using the agency cost and information asymmetry theory of capital structure

I need to know about corporate financial analysis

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli

Question: a) Using illustrative and numerical examples, differentiate between arbitraging and speculation in the context of foreign exchange market. b) One year borrowing

What is the industry average price-earnings ratio? What is the price-earnings ratio for Ragan, Inc.? Is this the relationship you would expect between the two ratios?

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

Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management

differentiate between allocative efficiency and pricing efficiency

Question: (a) As the cost of capital is an essential element of investment appraisal, its calculation must be undertaken with care. Failure to do so could lead to adverse cons

This is an accounting term which is applicable to stockholders of closely going businesses. Accumulated earnings and profits are a company's net profits after subtracting distribut