Reference no: EM133080778

Question - Investment Corp. (IC) is considering foreign direct investment in a facility overseas. The investment will require $1,000,000 up front, and the require rate of return is 6%. The facility should produce for five years. The following data concerns the relevant cash flows:

1) Revenues are projected to be $450,000 for the first two years, and $200,000 for the last three years.

2) Fixed costs of operating the facility will be $10,000 per year paid at the beginning of the year.

3) Variable costs are expected to be 30% of gross revenues.

4) Maintenance costs are expected to be $1,000 for the first year, $3,000 for years 2, 3, and 4, and $7,000 for year 5.

5) IC uses straight-line depreciation, and the facility is estimated to have a salvage value of $200,000.

6) The flat tax rate is 25%.

Required - Use the Present Value table (or a financial calculator) to calculate the following:

1) Net Present Value (NPV)

2) Payback Period

3) Book Rate of (ROI)