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GG Corp is considering the manufacture of a new chemical compound. An investment of $ 4 million in plant and equipment is required. The firm
GG Corp is considering the manufacture of a new chemical compound. An investment of $
million in plant and equipment is required. The firm estimates that the investment will have a
year life, and will use straightline depreciation towards a zero salvage value depreciating full
amount However, the investment has an anticipated salvage value equal to of its original
costs. Estimated Sales Volume is estimated to be million units and grow annually at
Selling price per unit is expected to be $ in year and expected to increase by each year.
GG estimates that it will incur additional fixed operating expenses of $ million per year and
variable operating expenses equal to of total revenue. GG estimates that it will need to
invest in net working capital at the start of the project year All net working capital
will be recouped at the end of the project. Tax rate is and requires a rate of return.
A What is the NPV and IRR of this Project?
B What is the breakeven sensitivity analysis for the following inputs sales growth, initial sales
estimate, price per unit growth rate, variable operating expenses, and tax rate From the
analysis performed in B which variables are the most risky from a capital budgeting
perspective?
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