Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bourque Enterprise is considering a new four - year project. The company bought some land a year ago for $ 2 0 0 , 0

Bourque Enterprise is considering a new four-year project.
The company bought some land a year ago for $200,000 in anticipation of using it as a manufacturing production site. Based on a recent appraisal, the company believes it could sell the land for $235,000 on an after-tax basis. In four years, the land could be sold for $250,000 after taxes.
The company projects unit sales as follows at a price of $100 per unit.
Year Unit sales
19,000
29,000
37,000
43,000
Total fixed costs are $125,000 per year, and the variable product costs will be 25 percent of sales. The plant and equipments required for the project will cost $510,000. A five-year MACRS depreciation is used. At the end of the project, these fixed assets can be sold for $55,000 before tax.
The project will require net operating working capital equal to 20 percent of sales that must be accumulated in the year prior to sales, to support inventory and the credit sales to customers.
The tax rate is 22 percent. The required return is 11 percent. 5. Decision rules
Calculate the NPV, IRR and payback years.
NPV $
499006
IRR
34.59
%
Payback years
1.94
years. Sensitivity analysis
What is the NPV sensitivity to the unit price (P)?
NPV sensitivity to P: $ I need help on how NPV, IRR, Payback years, and NPV sensitivity to P was calculated. Please show your work. Thanks!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions

Authors: Anthony Saunders, Marcia Cornett

5th Edition

0078034663, 978-0078034664

More Books

Students also viewed these Finance questions