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NEED HELP WITH THE LAST TWO QUESTIONS!!!! Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case
NEED HELP WITH THE LAST TWO QUESTIONS!!!!
Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case of Pheasant Pharmaceuticals: Pheasant Pharmaceuticals is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales (units) Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate Year Year 2 Year 3 Year 4 4,8005,100 5,000 5,120 $22.33 $23.45$23.85 $24.45 $9.45 $10.85 $11.95 $12.00 $32,500 $33,450 $34,950 $34,875 33% 45% 15% 7010 This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Pheasant Pharmaceuticals pays a constant tax rate of 40%, and it has a required rate of return of 11% When using accelerated depreciation, the project's net present value (NPV) is $39,581 . (Hint: Round each element in your computation- including the project's net present value-to the nearest whole dollar) When using straight-line depreciation, the project's NPV is $39,239 . (Hint: Again, round each element in your computation-including the project's net present value-to the nearest whole dollar.)Step by Step Solution
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