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2 . Lawton Enterprises is evalua ng a project with the following characteris cs: Fixed capital investment is $ 2 , 0 0 0 ,
Lawton Enterprises is evaluang a project with the following characteriscs:
Fixed capital investment is $
The project has an expected year life
The inial investment in working capital is $ At the end of each year, working capital
must be increased so that the cumulave investment in net working capital is onesixth the
next years projected sales.
The Fixed capital is depreciated percent in year percent in year percent in year
percent in year percent in year and percent in year
Sales are $ in year They grow at a percent annual rate for next two years, and
then grow at a percent annual rate for the last three years.
Fixed cash operang expenses at $ for years and $ for years
Variable cash operang expenses are percent of sales in year percent of sales in year
and percent of sales in years
Lawtons marginal tax rate is percent.
Lawton will sell its fixed capital investments for $ when the project terminates and
recapture its cumulave investment in net working capital. Income taxes will be paid on any
gains.
The projects required rate of return is percent.
If taxable income on the project is negave in any year, the loss will offset gains elsewhere in
the corporaon resulng in a tax savings.
a Determine if this is a profitable investment using NP and IRR
b If the tax rate increases to percent and the required rate of return increases to
percent, is the project sll profitable?
Can you use this excel sheet with showing formulas? Thank you!!
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