Answered step by step
Verified Expert Solution
Question
1 Approved Answer
QUESTION 1 Martinique is a manufacturing company considering a new investment in a new product line expected to increase its production capacity. The initial investment
QUESTION 1 Martinique is a manufacturing company considering a new investment in a new product line expected to increase its production capacity. The initial investment needed for the project is $190,000 to buy the equipment. The assets will be depreciated using the straight line method over 3 years. Assume salvage value of 21000 at the end of year three. Company also estimates that additional 10,000 will be spent to improve the product in the year two Research conducted by the firm indicates that the new production line can generate $90,000 income before depreciation and taxes each year Assume a tax rate of 30% and a cost of capital of 12% Required: a) Compute the depreciation and annual cash flows after tax of this operation (10 marks) b) Using the NPV method, Calculate NPV of the project and should the projected be accepted or rejected and why? (marks) c) Calculate the IRR of the Project (5 Marks) d) Would you accept the project on the basis of IRR if the cost of capital was 137 (1 mark) Note: Copy the below Table and paste in the Answer Box for calculating NPV Arial 3(12pt) T-E- E. 239 Click Save and Submit to save and submit. Click Save All Answers to save all answers
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started