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Desai 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
Desai 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 costs 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 project's expected NPV? WACC 10.0% Net investment cost (depreciable basis) $200,000 Units sold 50,000 Average price per unit, Year 1 $25.00 $150,000 Fixed op. cost excl. deprec. constant) Variable op. cost/unit, Year 1 $20.20 Annual depreciation rate 33.333% Expected inflation rate per year 5.00% Tax rate 40.0% OA. $17,753 O B. $18,292 oc. $17,646 OD. $16,595
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