Question
Innovation inc. is considering the following project:: Cost of the investment 85,000 Working capital required 30,000 Annual cost saving 24,000 Replacing some parts of the
Innovation inc. is considering the following project::
Cost of the investment 85,000
Working capital required 30,000
Annual cost saving 24,000
Replacing some parts of the equipment in year 6 19,000
Estimated salvage value at the end of the project 2,800
Life of the project 8 years
Discount rate 15%
At the end of the end of the project, working capital will be releases and may be used elsewhere by the company.
Required:
Compute the projects net present value:
Net present value=
Based on the NPV of the project, will the company accept the project?
Is the IRR higher or lower than the companys discount rate?
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