Question
Please write answer in your own words because i have to submit on turntin The CEO of Melbourne Bite (Ronnie) is considering the acquisition of
Please write answer in your own words because i have to submit on turntin
The CEO of Melbourne Bite (Ronnie) is considering the acquisition of a new project known as Miler Lite. Ronnie need your advice as a chief financial officer (CFO) on the new acquisition using NPV analysis.
A feasibility study has been undertaken at the cost of $750,000 which has indicated that the project is technically feasible. Miler Lite is priced at $15 million, would require $3 million in transportation costs and installation cost of $2 million. Miler Lite has a useful life of 8 years and will be depreciated using straight-line depreciation over the 5-years. It is expected to have a salvage value of $100,000 at the end of 8 years and it would require a $500,000 in net working capital (time zero). Miler Lite would increase revenue by $8.5 million and increase operating cost by $1.5 million a year for the next 8 years. The marginal tax rate is 30 percent and the projects cost of capital if 20 percent. Would you go ahead with the new acquisition using NPV analysis? Explain.
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