Question
please take your time Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of
please take your time
Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features; The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0). Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,871,466. The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation). If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10). If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000) The companys operating cost (not including depreciation) will equal 50% of sales. The companys tax rate is 35 percent. Use a 10-year straight-line depreciation schedule. At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price). The projects WACC = 10 percent Assume the firm is profitable and able to use any tax credits (i.e. negative taxes). What is the project's NPV? Round to nearest whole dollar value.
please take your time
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