Question
Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and
Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires an investment of $6,000 today on net working capital. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce its pre-tax annual cash flows of $5,000 per year. The investment on the project costs $76,000 today plus $4,000 installation cost. The project generates sales revenues of $67,500 each year for 3 years. The annual operating costs of the project is $25,000, excluding depreciation. GC has a weighted average cost of capital 11.00% and its tax rate is 35 percent. The company can sell the equipment at the end of the third year to generate $10,000 after-tax cash flow. What is the project's MIRR and NPV Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires an investment of $6,000 today on net working capital. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce its pre-tax annual cash flows of $5,000 per year. The investment on the project costs $76,000 today plus $4,000 installation cost. The project generates sales revenues of $67,500 each year for 3 years. The annual operating costs of the project is $25,000, excluding depreciation. GC has a weighted average cost of capital 11.00% and its tax rate is 35 percent. The company can sell the equipment at the end of the third year to generate $10,000 after-tax cash flow. What is the project's MIRR and NPV
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