Question
Project I: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $250,000 to install. The firm will use the
Project I: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $250,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $100,000. The project will last 6 years at which time the market value for the equipment will be $30,000. The project will project a product with a sales price of $120.00 per unit and the variable cost per unit will be $65.00. The fixed costs would be $500,000 per year. Because this project is very different to current products sold by the business, management has imposed a 2 percentage point premium above its current WACC as the valuation hurdle it must meet or surpass.
Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Forecasted Units Sold | 21000 | 55000 | 44000 | 28000 | 25000 | 11000 |
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