Reference no: EM132591903

You are called by Hope van Dyne to determine whether a new Pym technology for miniaturized food delivery is economically desirable. This project will require $50,000,000 in equipment to infuse food with modified Pym particles. Installing and calibrating the equipment to begin operations will cost an additional $4,500,000. This equipment is categorized as seven-years MACRS property. The project will bring a revenue of $35,000,000 in the first year. After that, the revenue will grow 5% every year (as more people take a liking to miniature food).

The main cost of this project (other than initial installation and calibration) is the salary of lab technicians, which in the first year adds up to $5,000,000. The salary of these workers will increase with the general inflation rate of 2% every year. In addition to this, rent and utilities cost an additional $5,000,000 every year. This cost is expected to stay constant. The project is expected to last ten years, at the end of which all the equipment can be sold for 10% of its original value.

Question 1: Assuming a tax rate of 21% and an interest rate of 12%, compute income, cash flows, and net present worth over the project life.