Question
ABC Pharmaceutical is considering a project that requires a new piece of lab equipment that they purchase today for $80,000. It will depreciate on a
ABC Pharmaceutical is considering a project that requires a new piece of lab equipment that they purchase today for $80,000. It will depreciate on a straight-line basis over 10 years, after which it has a salvage value of $25,000. The new project is expected to produce $50,000 in yearly revenue and $7,500 per year of labor and maintenance, and $10,000 in yearly fixed costs. Revenues and expenses are increased by 3% inflation each year. The cost of capital for this type of equipment is 21%. What is the net present value and IRR of the project?
ABC Pharmaceutical is considering a project that requires a new piece of lab equipment that they purchase today for $80,000. It will depreciate on a straight-line basis over 10 years, after which it has a salvage value of $25,000. The new project is expected to produce $50,000 in yearly revenue and $7,500 per year of labor and maintenance, and $10,000 in yearly fixed costs. Revenues and expenses are increased by 3% inflation each year. The cost of capital for this type of equipment is 21%. What is the net present value and IRR of the project?
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