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A company is undertaking a new project. Applicable data follows. Project duration is 3 years Required investment for new equipment is $50,000 Depreciate via 5-year
A company is undertaking a new project. Applicable data follows. Project duration is 3 years Required investment for new equipment is $50,000 Depreciate via 5-year MACRS The machine will be sold for $25,000 (today's dollars) at the end of 3 years The project will bring additional revenue of $70,000 (today's dollars) per year but will incur additional O&M costs of $51,000 (today's dollars) per year. An initial Working Capital investment of $10,000 at year 0 is required. Subsequent years will require additional Working Capital at the general inflation rate. Any investment in working Capital will be recovered at the end of the project. To purchase the equipment, the company will borrow $30,000 at 15% compounded annually over a 2-year period. You will need to determine the 2 equal annual payments used to pay off the $30,000. The company itself will finance the remaining $20,000. General inflation rate is 8% per year for the project Marginal tax rate is 34% Market interest rate i is 10% Given the information, Determine the end of year cash flows for years 0 through 3 Compute the Net Present Worth for this 3-year project Compute the 1RR of the project Year 0 ______________________ Year 1 ______________________ Year 2 ______________________ Year 3 ______________________ NPW ______________________ IRR ______________________
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