Reference no: EM132766235
Question - Gallatin, Inc., has provided the estimates shown below relating to a proposed new project with a 4-year project life. At the end of the 4 years, the equipment purchased for the project will be sold and working capital would revert back to the company to be used for other company needs.
Annual cash sales $250,000
Annual cash expenses $130,000
Annual depreciation on new equipment $75,000
Initial cost of new equipment $300,000
Salvage value of new equipment in 4 years $40,000
Working capital requirement $86,130
Required -
1. Assuming Gallatin's discount rate is 12%, computation of the net present value (NPV) of the project. manner that demonstrates your understanding of the inflows and outflows?
2. Is the Internal rate of return (IRR) on this project greater than or less than 12%? Why?
3. Compute the Simple Rate of Return on this project.
4. Ignoring working capital, salvage value and depreciation, compute the payback period for this investment.
5. Presentation of work.