Question
LOL Inc. is considering the launch of a new electronic text messaging billboard. Manufacturing equipment needed will cost $720,000, have a four-year life; depreciation is
LOL Inc. is considering the launch of a new electronic text messaging billboard. Manufacturing equipment needed will cost $720,000, have a four-year life; depreciation is straight line to zero. Net salvage value of the manufacturing equipment at the end of four years is estimated to be $25,000. Initially, the project will increase net working capital by $15,000. Sales are projected at 100 units per year; price per unit will be $22,000, variable costs per unit will be $15,000, and fixed costs are $200,000 per year. The required return on the project is 8 percent, and the relevant tax rate is 35%.
Calculate the NPV and IRR.
Under NPV and IRR rule, should LOL Inc. invest? Why?
Please show how you get all of the parts. I have the correct answer but do not know how to get to it. Thank you!!
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