Question
Please show all work on excel A company is considering a new 4-year expansion project that requires an investment of $200,000 for new equipment, plus
Please show all work on excel
A company is considering a new 4-year expansion project that requires an investment of $200,000 for new equipment, plus an extra $10,000 for shipping and $30,000 for installation. The fixed assets will be depreciated straight line to zero over 4 years, after which, it will have a salvage value of $96,000. The project requires an initial investment of $30,000 in NOWC, 80% of which will be recovered at the end of the project. Expected annual unit sales are 1,250 with sale price and cost per unit of $200 and $100, respectively. The tax rate is 40% and the required return (i.e. the WACC) is 10%. The project data are summarized below.
| Baseline: | |
| WACC | 10% |
| Tax Rate | 40% |
| Equipment Cost | $200,000 |
| Shipping | $10,000 |
| Installation | $30,000 |
| Salvage Value | $96,000 |
| Project Life (Years) | 4 |
| NOWC Investment | $30,000 |
| NOWC Recovery Rate | 80% |
| Units Sold / Year | 1250 |
| Unit Price | $200 |
| Cost per Unit | $100 |
- What will be the initial cash flow for the project (FCF0)?
- Compute the projects OCF.
- Determine the after-tax salvage value of the equipment.
- Find the projects net present value and indicate whether or not the project should be accepted based on NPV.
- Determine the sensitivity of NPV to the cost per unit, i.e. NPV / Cost per Unit.
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Fundamental Accounting Principles
Authors: Larson Kermit, Tilly Jensen
Volume I, 14th Canadian Edition
71051503, 978-1259066511, 1259066517, 978-0071051507
