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An owner decides that he wants to go ahead with manufacturing; he must spend $900,000 for the

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An owner decides that he wants to go ahead with manufacturing; he must spend $900,000 for the new equipment, legal fees of $50,000, start-up cost, $50,000. The formula will net the company an estimate $375,000 in the first year, $425,000 in year two, and $500,000 in the third year for the 3-year life of the formula. The owner's cost of capital is based on the following: Rrf: 3.625, B: 1.00, Rm: 13.875. Assume that cash flow occurs at the end of the year.

Calculate the NPV for this project. Should it be undertaken?


Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Computation of the NPV for this project Given information Legal fees 50000 Start up cost 50000 Net E...View the full answer


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Pushpinder Singh
Currently, I am PhD scholar with Indian Statistical problem, working in applied statistics and real life data problems. I have done several projects in Statistics especially Time Series data analysis, Regression Techniques. I am Master in Statistics from Indian Institute of Technology, Kanpur. I have been teaching students for various University entrance exams and passing grades in Graduation and Post-Graduation.I have expertise in solving problems in Statistics for more than 2 years now.I am a subject expert in Statistics with Assignmentpedia.com.
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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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