Question
The Whilst Co. paid consultants $10,000 to conduct a feasibility study for a new project. The projects estimated annual sales are $200,000 and costs are
The Whilst Co. paid consultants $10,000 to conduct a feasibility study for a new project. The project’s estimated annual sales are $200,000 and costs are $102,300. The company has also estimated that existing sales will decrease by $10,600 per year due to this new project. The project requires an investment in inventory of $15,000 plus another $28,000 in accounts receivable. Fixed assets, which belong in a 30% CCA class, cost $70,000 to buy and $10,000 to deliver and install. Accounts payable will increase by $36,000. The project has a life of 7 years. At the end of the seven years, the equipment has an estimated market value of $26,000. The company requires a 14% rate of return and is in the 34% marginal tax bracket.
Using NPV analysis and assuming that the asset pool remains open, should the company accept or reject the project?
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Financial And Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
14th Edition
1337119202, 978-1337119207
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