Question
Data Mining is considering an expansion project. The companys management has decided that the initial cost of the project is $300,000 with an additional installment
Data Mining is considering an expansion project. The companys management has decided that the initial cost of the project is $300,000 with an additional installment cost of $80,000. The project life is four years, during its life the project will depreciate based on the following rates: 1st year 33% 2nd year 45% 3rd year 15% 4th year 7% Management has also decided that an additional of $45,000 in inventories and $12,000 in accounts payable needed if the project taken today. During the next four years, the expected quantity of merchandise to be sold each year is 15,000 units at a price of $50 per unit. The projects fixed cost and total variable costs estimated to be $350,000. The project has been assigned a salvage value of $45,000 at its end life after four years and the weighted average cost of capital of 10%. *tax rate is 40%.
Based on the companys information, the fixed capital investment(Depreciable Basis) is *
$300,000
$380,000
$220,000
$400,000
2) The change in net working capital is : *
$33,000
$45,000
$57,000
$47,000
3) Then, initial investment (I0) can be calculated as : *
$410,000
$412,000
$413,000
$415,000
4) The depreciation of the 1st year is *
$120,300
$125,400
$130,300
$116,000
5) The depreciation of the 2nd year is
$150,000
$171,000
$154,000
$183,000
6) The depreciation of the 3rd year is *
$57,000
$49,000
$40,000
$41,000
7) The depreciation of the 4th year is *
$26,200
$26,300
$26,500
$26,600
8) The the net operating cash flow after tax for the first year is *
$290,160
$285,700
$290,700
$285,900
9) The the net operating cash flow after tax for the second year is *
$255,000
$308,400
$450,600
$460,000
10) The net operating cash flow after tax for the third year is *
$250,000
$352,100
$262,800
$360,000
11) The the net operating cash flow after tax for the 4th year is *
$200,440
$300,360
$400,000
$250,640
12) The Book Value of the fixed asset at the termination after four years is *
$49,200
$0
$45,000
$45,200
13) The termination value at the end life of the project is calculated as *
$45,000
$77,760
$78,000
$$60,000
14) The NPV of the project is equal to *
$458,157.4
$645,998.5
$515,274.7
-$252,998.2
15) In conclusion, what is your decision regarding the project *
Reject the project
Accept the project
Can't determine
either accept or reject based on economic conditions
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