Question
Project A:Red Dirt Industries is looking at a project that will require an $80,000 investment in plant, property, & equipment.$20,000 in new inventory is required
Project A:Red Dirt Industries is looking at a project that will require an $80,000 investment in plant, property, & equipment.$20,000 in new inventory is required with half going on accounts payable.The net working capital will be returned when the project is terminated.Red Dirt expects to produce annual sales of $110,000 with associated fixed costs of $30,000 (per year) over its 5-year life. The asset will depreciate using a 5-year MACRS class life.The salvage of the equipment is $10,000. The tax rate is 25%.
Project B:Osage Products is looking at a project that will require a $1 million investment in a new computer system to manage inventory. The project reduces the cost to manage inventory costs by $300,000 per year over its 5-year life. The system depreciates using a 3-year MACRS class life.The salvage value of the equipment is $50,000 at the end of year 5.There will be no change in net working capital.The tax rate is 34%.
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