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Please NO EXCEL using for the solution. Thank you United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use
Please NO EXCEL using for the solution. Thank you
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of existing warehouse, which is currently rented out to a neighbouring firm. The next year's rental charge on the warehouse is $100,000, and thereafter the rent is expected to grow in line of the inflation at 4% per year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.2 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $400,000. Finally, the project requires an initial investment in working capital of $350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. 1 Years 1 sales of hog feed are expected to be $4.2 million, and thereafter sales are forecasted to grow by 5% per year. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 35%. The OCC is 12%. Calculate the NPV of Pigpen's project. United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of existing warehouse, which is currently rented out to a neighbouring firm. The next year's rental charge on the warehouse is $100,000, and thereafter the rent is expected to grow in line of the inflation at 4% per year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.2 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $400,000. Finally, the project requires an initial investment in working capital of $350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. 1 Years 1 sales of hog feed are expected to be $4.2 million, and thereafter sales are forecasted to grow by 5% per year. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 35%. The OCC is 12%. Calculate the NPV of Pigpen's projectStep by Step Solution
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