CORPORATE FINANCE

$72-$HOUR ASSIGNMENT

Note:

This assignment covers session $5-$ Capital Budgeting.

Cover sheet and peer review form must be attached.

Company Y intends to launch a new project with the following information:

The project requires an initial investment in fixed assets of $$6,000,000.$

This investment will be depreciated straight$-$line over six years to a value of zero.

When the project comes to an end at the end of five years, the equipment will be sold for

$$600,000.$

The firm believes that working capital at each date must be maintained at $10\%$ of next

year's forecasted sales starting immediately.

Production costs are estimated at $22\%$ of revenue.

Sales forecasts $($in $$)$ are given in the following table:

The tax rate is $20\%$ and the discount rate of the project is $10\%.$

Calculate the NPV and IRR of the project.