Question
Please help me with this question Lightmoon Inc. is considering a new project. The project will require a purchase of equipment with the purchase price
Please help me with this question
Lightmoon Inc. is considering a new project. The project will require a purchase of equipment with the purchase price of $255,000.There is a total of $5,000 combined increase in inventories and account receivables which is partly financed by 2,000 increase in account payables.The project has a 5-year life. The fixed assets will be depreciated using 3-year MACRS to a zero book value. At the end of the project, the fixed assets can be sold for 3% of the original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of 4,000 units and the selling price per unit is $65. Variable costs per unit is expected to be $40 and annual fixed costs are expected to be $4,000. The tax rate is 34 percent and the required rate of return (cost of capital) is 20percent. Calculate the project's initial investment costs, annual operating cash flows and terminal cash flows.What are project's NPV and IRR?
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