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Problem 3. (6 points) A manufacturing plant can be purchased for $180,000. An additional $20,000 must be invested in working capital for raw material and
Problem 3. (6 points) A manufacturing plant can be purchased for $180,000. An additional $20,000 must be invested in working capital for raw material and spare parts inventory and accounts receivable money tied up in operating costs. The $180,000 plant costs will be depreciated straight line over 7 years using the half-year depreciation convention in year 1. Actual salvage value is estimated to be $170,000 for used machinery and equipment and working capital return at year 15. Annual sales revenue is estimated to be $100,000 in year 1 with operating costs of $40,000. In years 2 to 15, escalation of operating costs and sales revenue are projected to be washout. The effective income tax rate is 40%. The minimum ROR is 15% after taxes. Calculate the project DCFROR. Financial situation is stand alone
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