Question
A project requires an initial investment in equipment of $900,000 and then requires an investment in working capital of $100,000 at the beginning (t =
A project requires an initial investment in equipment of $900,000 and then requires an investment in working capital of $100,000 at the beginning (t = 0). The project is expected to produce sales revenues of $300,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $250,000. The corporate tax rate is 21% and the cost of capital is 9%. (Show Work).
a.Cash flows from the project are:
b.Calculate the NPV and IRR of the project:
c.Calculate the NPV and the IRR of the project if the cost of capital is 12%:
d.What would the NPV and IRR of the project be if the revenues were higher by 10% and the costs were 65% of the revenues (with the cost of capital back to 9%)?
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