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Please help with 4b and 4c Proiect Analysis: Use the following information to answer questions 3 and 4, below: A project requires an initial investment
Please help with 4b and 4c
Proiect Analysis: Use the following information to answer questions 3 and 4, below: A project requires an initial investment (i.e., at t-o) in equipment of $200,000. At t-3, the project will end and the company plans to sell the equipment for $5,000. The equipment can be depreciated according to the three year schedule, which allows depreciation of 33.33% at t-1, 44.45% at t-2, 14.81% at t-3, and 7.41% at t=4. Depreciation will be based solely on the initial cost of the equipment (i.e., when calculating depreciation, ignore any salvage value). This project is expected to produce sales revenue of $300,000 the first year (i.e., at t-l); this revenue will increase by 10% per year over the next two years 1.e., t-2 and t-3) . Manufacturing costs are estimated to be 60% of sales. A key marketing study was completed last year; the cost of this study was $50,000 This project requires working capital. Specifically, at each point in time, the working capital required is equal to 20% of the predicted revenue the next year. So, for example, working capital required at t-0 is 20% f $300,000, or $60,000. Working capital will be fully recovered at t 3 The corporate tax rate is 35%. The company's tax situation is such that it can make use of all applicable tax shields and deductions. The opportunity cost of capital for this project is 10% 3. Calculate the cash flows generated by the project for t 0 t-l, t-2, t 3, and t-4. 4. A. Calculate the Net Present Value of the project B. Keeping all other assumptions the same, what must t-l Revenue be in order for this project to have a zero NPV? C. Keeping all other assumptions the same, what must t=1 Revenue be in order for this proj ect to have zer Profit After Tax at t 1 What is the project's NPV now
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