Question
Carol plans to establish a new laundry. Prior to establishing her new business, she understood that she needs to conduct a market test. The cost
Carol plans to establish a new laundry. Prior to establishing her new business, she understood that she needs to conduct a market test. The cost of this test marketing is $ 65,000. The potential market is quite good at least for the next five years. That's why she is considering investing in a new machine for her new business of $ 450,000. She estimated that the depreciation will be $ 45,000 annually. by the end of project the machine can be sold again for $ 125,000 after tax. The machine is estimated to save $ 130,000 cost of capital pre-tax annually. The new product will cost around 35 percent of the sales, and the expected sales in the first year will be around $ 99,000 and will increase 25 percent annually. Carol has an empty building that can be used to do her new business. The building actually can be sold for $ 115.000 after tax. She considers that she needs an initial $ 55,000 as an initial net working capital. The net working capital at the end of each year will be equal to 20 percent of sales for that year. She considers that her current selling and the general cost are $ 32,000 and it will increase 13 percent annually due to inflation and government regulation. The tax rate is 21 percent and the discount rate is 12 percent. Based on her marketing test, she believes that the sales of a new product will increase by around 25 percent annually. However, the introduction of new business products will reduce the existing product for 20 percent. a) How is the proposed new project analysis? Use Excel and please provide the formula or calculation so I can apply it to my task.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started