Question
Calculate the NPV AND the IRR for this project. Facts: You are thinking about starting a business producing customized key chains you feel will appeal
Calculate the NPV AND the IRR for this project.
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Facts: You are thinking about starting a business producing customized key chains you feel will appeal to new drivers. Your machine that will be used to make these key chains will cost $500,000, and have a depreciable life of three years (MACRS- 33% year 1, 45% year 2, 15% year 3 and 7% year 4). Your research leads you to believe you can sell 200,000 units per year, increasing 10% each year, and you plan on pricing your product at $4.00 (which will remain through the life of the project). Annual fixed costs will equal $150,000, which includes the lease of the building, insurance and a production manager. Variable costs are estimated to be 50% of sales. You will build $50,000 of inventory to start, of which $20,000 will be purchased on credit (accounts payable). The life of the project is four years, the salvage value of the machine at the end of year four is $50,000 and working capital, which remains fixed for four years, is liquidated. WACC = Tax Rate:
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