Question
Alpha tires makes tiers. A project is being considered in which they will have a 4 yr US contract in Brazil. They have never done
Alpha tires makes tiers. A project is being considered in which they will have a 4 yr US contract in Brazil. They have never done business there. Alpha has spent $45,000 making a study last year in order to find out if the project is good.
The project is expected to produce yearly sales of $555,000. Variable cost will be 22% of the sales, annual fixed costs will be $187,000
At the beginning this 4 yr project will require $50,000 increase in net working capital, the equipment required will cost $630,000 and will be depreciated to zero in a straight line over 5 yrs. The equipment will be sold at the end of the project to a partner for $175,000. The relevant tax rate is 32%. The company's WACC is 17%, but for this project management will add another 3% to capture the foreign risk in their required rate of return.
Show the cash flows and calculate NPV and IRR (ignore payback).
NPV = ?
IRR = ?
Which one is better and why
year 0 OCF = ?
year 1 OCF = ?
year 2 OCF = ?
year 3 OCF = ?
year 4 OCF = ?
year 1 NWC =
year 2 NWC =
year 3 NWC =
year 4 NWC =
year 1 NCS =
year 2 NCS =
year 3 NCS =
year 4 NCS =
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