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A company proposes to invest in a new project involving a capital cost of $500,000. The project has a lifespan of 6 years with no
A company proposes to invest in a new project involving a capital cost of $500,000. The project has a lifespan of 6 years with no salvage value at the end of its life. The project will generate annual net cash flows of $110,000. The company's tax rate is 35%. The discount rates and their corresponding present value factors for 6 years are given below:
Discount Rate | Cumulative Factors |
10% | 4.355 |
12% | 4.111 |
14% | 3.889 |
16% | 3.685 |
18% | 3.498 |
Requirements:
- Calculate the Net Present Value (NPV) of the project at each discount rate.
- Determine the Internal Rate of Return (IRR) for the project.
- Assess whether the project is financially viable based on the NPV and IRR.
- Discuss the impact of changing the discount rate on the project's viability.
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