Question
A pharmaceutical company purchased a material handling system worth $80,000 through a special purchase plan with his supplier, where he promised to pay $50,000 the
A pharmaceutical company purchased a material handling system worth $80,000 through a special purchase plan with his supplier, where he promised to pay $50,000 the day today (contract signing), and two equal payments of $17,500 ($15,000 principal payment and $2,500 interest) at the end of years 2 and 4. The company expects to use the asset for 4 years and then sell it in the market at an estimated retail value of $45,000. Accounting information establishes that the asset can be depreciate using the maximum percentage method, with a fiscal useful life of 8 years under the guidelines of Mexican law. The company expects revenue of $120,000 in the first year and annual increases of 5% per year, while that annual expenditures are estimated at $40,000 for the first year, to then increase by $2,500 per year for the remainder of the planning horizon. If the company is subject to a 40% tax rate on its payment of income taxes, determine the Net Present Value (NPV) of this project, if the company establishes an effective TREMA of 15% per year. Answer: NPV (15%) = $109,518
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