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2a. In your first task as a financial officer, you have found positive NPV, and IRR greater than the cost of capital for a project
2a. In your first task as a financial officer, you have found positive NPV, and IRR greater than the cost of capital for a project from DCF analysis. You are excited! Now will you stop there or do some more analysis on this project? If you do, then explain what could be those analysis? 2b. While evaluating a new product launching project for DAMS Corp., you find that the project will cost $5,600,000, has a five-year life with no salvage value, depreciation is straight line to zero. Sales are projected at 750 units per year and the selling price per unit will be $5,000; variable cost per unit will be $3,500 and fixed costs will be $950,000 per year. The required return on the project is 10% and the corporate tax rate is 35%. Using the tax shield approach to determine OCF, what is the degree of operating leverage at the projected level of sales of 250 units? How do you interpret this number and is it too high, too low for a new project
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