Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

RocketOwl, Inc. is considering a new product to bring to market. They estimate the product would have a viable market for five years. If they

RocketOwl, Inc. is considering a new product to bring to market. They estimate the product would have a viable market for five years. If they wish to do the project they will need to purchase equipment with a price of $1,785,469. The firm will use straight-line depreciation to a value of $500,000 and assume the equipment will have a pre-tax salvage value of $531,870. They estimate revenue and costs for the project as presented in the table:

Operating Year Revenue Costs
1 $328,014 $81,936
2 $675,681 $300,738
3 $2,591,227 $964,634
4 $982,565 $245,812
5 $328,014 $81,936

RocketOwl, Inc. expects the project will need initial inventory for the project of $107,818, and this amount will stay constant throughout the project. They also expect in the investment year the project will generate accounts receivable of $71,914 and accounts payable of $35,535. They also assume that the project will generate accounts payable each year equal to 0.18 of annual sales and accounts payable equal to 0.07 of annual costs. The firm's average tax rate is 0.33. If the firm's WACC is equal to 11.57%, what is the NPV of the project?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Clever Girl Finance Learn How Investing Works Grow Your Money

Authors: Bola Sokunbi

1st Edition

1119696739, 978-1119696735

More Books

Students also viewed these Finance questions

Question

Why are some analyses called horizontal and others called vertical?

Answered: 1 week ago