Question
6. OMG Company is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $32,000
6. OMG Company is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $32,000 per year. The initial cost of the equipment for the project is $25,000, and OMG expects to sell the equipment for $8,000 at the end of the tenth year. The equipment will be depreciated on a straight-line basis over six years for tax purposes. The project requires a working capital investment of $6,000 at its inception and another $4,000 at the end of year 5. The working capital is fully recoverable at the end of the life of the project. Assuming a 15% tax rate and a 12% required rate of return. d. Compute the net present value (NPV) and the internal rate of return (IRR) for the project. (for the IRR, use Excel or a financial calculator) (step by step) e. Do you recommend the company to accept this project? Why? please ecplain
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