Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the projects life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. 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.

WACC 10.0%
Equpiment cost $200,000
Units sold 56,000
Average price per unit, Year 1 $25.00
Fixed op. costs (constant) $150,000
Variable op. cost/unit, Year 1 $20.20
Expected annual inflation rate 5.00%
Tax rate 25.0%

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

International Financial Reporting And Analysis

Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn

8th Edition

978-1473766853, 1473766850

More Books

Students also viewed these Finance questions

Question

Fixed dollar match: 75 cents per each $1 employee contribution.

Answered: 1 week ago