Question
Supposeafirmisconsideringthefollowingproject,whereallofthedollarfiguresareinthousands of dollars. In year 0, the project requires $37,500 investment in plant and equipment, is depreciatedusingthestraight-linemethodoversevenyears,andthereisasalvagevalueof$5,600 in year 7. The project is forecast to
Supposeafirmisconsideringthefollowingproject,whereallofthedollarfiguresareinthousands of dollars. In year 0, the project requires $37,500 investment in plant and equipment, is depreciatedusingthestraight-linemethodoversevenyears,andthereisasalvagevalueof$5,600 in year 7. The project is forecast to generate sales of 5,700 units in year 1, rising to 24,100 unitsinyear5,decliningto8,200unitsinyear7,anddroppingtozeroinyear8.Theinflationrate is forecast to be 1.5% in year 1, rising to 2.8% in year 5, and then leveling off. The real cost of capital is forecast to be 9.3% in year 1, rising to 10.6% in year 7. The tax rate is forecast to be aconstant42.0%.Salesrevenueperunitisforecasttobe$15.30inyear1andthengrowwithinflation.Variablecostperunitisforecasttobe$9.20inyear1andthengrowwithinflation.Cashfixedcostsareforecasttobe$7,940inyear1andthengrowwithinflation.Whatistheproject NPV?
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