Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Deed industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase

Deed industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be

constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable cost should

rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be

no salvage value. This is just one of many projects for the firm, so any losses can be used to offset gains on other

firm projects. What is the projects expected NPV?

WACC 10.0%

Net investment cost (depreciable basis) $200,000

Units sold 60,000

Average price per unit, Year 1 $28.00

Fixed op. cost excl. deprec. (constant) $150,000

Variable op. cost/unit, Year 1 $22.00

Annual depreciation rate 33.333%

Expected inflation rate per year 7.00%

Tax rate 40.0%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Recommended Textbook for

American Public School Finance

Authors: William A. Owings, Leslie S. Kaplan

3rd Edition

113849996X, 978-1138499966

More Books

Students also viewed these Finance questions