Question
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. No change in net operating working capital would be required. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV?Do not round the intermediate calculations and round the final answer to the nearest whole number.
WACC10.0%
Net investment cost (depreciable basis)$200,000
Units sold58,000
Average price per unit, Year 1$25.00
Fixed op. cost excl. depr. (constant)$150,000
Variable op. cost/unit, Year 1$20.20
Annual depreciation rate33.333%
Expected inflation rate per year5.00%
Tax rate40.0%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started