Considering expanding its wine-making operations

Assignment Help Financial Management

Reference no: EM13803373

Lakeside Grapes is considering expanding its wine-making operations. They would need new equipment that costs $390,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage value is $62,000. The project requires $35,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $187,500 a year. What is the internal rate of return on this project if the relevant tax rate is 39 percent?

A. 16.42 percent

B. 16.67 percent

C. 18.90 percent

D. 35.94 percent

E. 41.50 percent

Reference no: EM13803373

Questions Cloud

A firm is looking to invest in a new sports drink : A firm is looking to invest in a new sports drink. They must invest $4 million today and another $4 million in one year. They expect that in two years, they will receive $3 million in free cash flow, and this will continue for 5 years (so the final $..

What was the total return on this stock : Corning (a glass and ceramics maker) has a stock price of $20.30 on November 1. Suppose it pays a 25 cent dividend on November 30, and the stock price at the end of the day on November 30 is $21.75. What was the total return on this stock in November..

What is the after-tax cash flow from this sale : Deer and Doe purchased $100,000 of equipment six years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $24,500. What is the after-tax cash flow from this sale if the tax rate is 35 percent?

What is the interim incremental net cash flow : Project grow will result in an increase of 5,000 units per year at a sale price of $ 11. each (assume 0% inflation). The additional sales will generate additional operating expenditures of 9. Per unit plus 3,000 in fixed operating cost. What is the i..

Considering expanding its wine-making operations : Lakeside Grapes is considering expanding its wine-making operations. They would need new equipment that costs $390,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage val..

Environmental effects be considered when evaluating : After discovering a new gold vein in the Colorado Mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulphuric acid extraction, a process that results in environ..

What is the equipments after-tax net salvage value : Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $15 million, of which 80% has been depreciated. The used equipment can be sold today for $3.75 million, and its tax rate is 30%. What is the equipment..

What is the initial investment outlay : Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $12 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 35%. W..

Present value of the death benefit : The premiums on $100,000 of 20 year term life insurance are $25 per month for a forty year old non-smoker. The risk free interest rate is 3% per year. In what year does the present value of the death benefit become less than the present value of all ..

User Account

All Pages