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Dr. Ramen is considering the purchase of a new noodle maker the Streeetcher. The company is provided with the following information. The maker will cost
Dr. Ramen is considering the purchase of a new noodle maker the Streeetcher. The company is provided with the following information.
- The maker will cost $3 million, fully installed and has a 15-year life. It will be depreciated to a book value of $600,000 and sold for that amount in year 15.
- The new noodle maker will generate $1 million in sales each year for the next 15 years. 15% of the new sales will come from the existing product in the company
- Because of the expansion, operating costs will increase by $400,000 per year. 15% of the increased cost will be attributed to the existing product
- The company will increase net working capital by $350,000 at the beginning of the project, and it will be liquidated at the end of the project.
- The Engineering Department spent $25,000 researching the various makers.
- Due to limited spaces, the maker has to be set up on the land that could be immediately sold for a market value of $250,000. At the end of the project, the land could be sold at the same value.
- Dr. Ramen's marginal tax rate is 25.00%.
- Dr. Ramen is 25.00% equity-financed.
- Dr. Ramen's 20-year, semi-annual pay, 8% coupon bond sells for $978.00
- Dr. Ramen's stock currently has a market value of $75 and the company believes the market estimates that dividends will grow at 5% forever. The company just paid a dividend of $5.
What is the IRR for the project?
What is the modified IRR?
What is the Discounted Payback Period?
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