Fully recovered at the end of the project''s life

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As a financial manager for a company, you are considering a proposed project which requires an investment of $600,000 in fixed assets. The project has a five-year useful life but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $100,000, which can be fully recovered at the end of the project's life. The marginal tax rate of your company is 35%, and the project discount rate is 12%. The annual sales and operating cost excluding depreciation are estimated to be $600,000 and $350,000 respectively. The project can be scrapped for a market value of $50,000 (before tax) at the end of its life. Should the project be accepted? SUPPORT YOUR ANSWER WITH NECESSARY COMPUTATIONS.

 

 

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