Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

CGX Transmitters is developing a 2 nd generation optical transmitter. The project will last for three years, at that time work will begin on 3rd

image text in transcribed
image text in transcribed
CGX Transmitters is developing a 2 nd generation optical transmitter. The project will last for three years, at that time work will begin on 3rd generation optical transmitters. CGX always uses straight line depreciation. The equipment will cost $13.8M and at the end of three years, the salvage value of the equipment will be $1.8M. Sales are expected to be $24M in year 1 and grow at 25% into each future year. Cost of Goods Sold will be 60% of sales. Fixed costs are $5M/ year. Net working capital requirements are $2.2M,2.65M, and 1.9M in years 13 respectively. The company's tax rate is 25%. The discount rate is 15%. Fill in any missing information you need to complete the capital budget. ( 20pts ) (values denoted in millions) : Should the company take on this project based on NPV? (5 pts) C) CGX asks you to perform sensitivity analysis on the discount rate used for this project. Calculate the project's NPV again with a required rate of return of 20%. Should the company take on this project based on this NPV? (5 pts) D) Calculate the project's IRR. Should the company take on this project based on this IRR (using the original 15% discount rate)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Students also viewed these Finance questions