Question
Company B wants to move into the market research business. They think it will be a two year project and will require the purchase of
Company B wants to move into the market research business. They think it will be a two year project and will require the purchase of a $100,000 piece of equipment which will cost another $12,000 to install and modify. The equipment has a 3 year MACRS life and can be salvaged at the end of two years for $25,000. They have projected revenues from the business of $120,000 and operating costs (not including depreciation) of $60,000 per year. Assume a cost of capital of 9% and a tax rate of 25% and also assume that net working capital increases $10,000 in year 0.
a. Calculate the company's cash flows for the project for years 1-2 and include net salvage value. To receive credit show work when calculating of cash flows.
b. Find the NPV and MIRR for the project.
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