The project requires an initial acquisition cost

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Reference no: EM131021000

A domestic firm is considering a 8-year project. The project requires an initial acquisition cost of $2 mil and needs additional installation cost of $0.2 mil at the beginning of the project. You expect to sell the equipment at $25,000 at the end of the project. You plan to fully depreciate (Salvage value will be zero) the equipment using the straight line method for your project perod. In order to fund the project, you plan to issue 8 -year annual amortized $1 mil bond at 12%. The first year revenue is estimated to be $4 mil and expected to grow at a rate of 8% per year afterward. The first year COGS is estimated to be $2.5 mil and expected to grow at the same rate of 8 % per year afterward. Fixed cost of $1 mil is also expected each year. The NWC requirement is estimated at 8% of each year’s revenue and expected to recover all the remaining NWC at the end of the project. Tax rate is 40% and WACC is 15%.Determine whether you will accept or reject this project using NPV and IRR method.

Reference no: EM131021000

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