Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Diesel Works Company is considering a project which will require the purchase of R1.5 million in new equipment. The equipment will be depreciated straight-line to
Diesel Works Company is considering a project which will require the purchase of R1.5 million in new equipment. The equipment will be depreciated straight-line to book value of zero over the 3-year life of the project. Diesel Works expects to sell the equipment at the end of the project for 20% of its original cost. Annual sales from this project are estimated at R1 million. The EBIT is equal to RS50 000 while the firm has an interest expense of R40 000. An initial networking capital investment equal to 20% of sales will be required to support the project. All of the networking capital will be recouped at the end of the project. The firm desires a minimal 12% rate of return on this project. The tax rate is 28%. Show all outflows as negative amounts. Use the following table to assist you in answering the questions. YEAR O YEAR 1 YEAR 2 YEAR 3 Initial outlay Net working capital OCF Terminal cash flow Total cash flow per period
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