Question
ABC drugs is considering expansion that would cost $1,000,000. The improvements will last for 4 years, fully depreciated. The improvements will increase the production by
ABC drugs is considering expansion that would cost $1,000,000. The improvements will last for 4 years, fully depreciated. The improvements will increase the production by 1,000,000 units/year. The price is $4/unit. Variable costs $3. Salaries = $400,000. Other fixed costs = $120,000/year. We need $120,000 of inventory which we will recover in the end of the project. Other working capital: Accounts receivable are going to increase 3%/year 1st year: beginning 60,000 Accounts payable are going to increase 3%/year 1st year beginning: 40,000 Tax rate is 26%. Required return is 14%. What are NPV and IRR? Do we accept or reject?
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