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The company intends to start producing and marketing wooden toy cars. The company has made the following forecasts: The life of the project is four

The company intends to start producing and marketing wooden toy cars. The company has made the following forecasts:

The life of the project is four years.

A total of 10,000 toy cars are expected to be sold each year

The sale price of the toy car is 50 euros

The production cost of a toy car is 25 euros and overhead costs (excluding depreciation) of 130,000 euros per year.

The company plans to invest 500,000 euros into fixed assets today.

The annual depreciation expenditure is 100,000 and the capital investments could be sold at 150,000 euros after four years.

At the start of the project, an additional 15% of the company's estimated annual turnover will be invested into current assets, but this investment is expected to be recovered at the end of the project.

The company has also already spent 20,000 for marketing research

Corporate tax rate is 25%

The company's required rate of return on investment is 15%.

Questions:

1. Find the incremental cash flows for the project

2. Based on the NPV, find out whether the investment project is economically viable?

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