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You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $112. The production cost of each
You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $112. The production cost of each heater is $96. You are expecting to sell 17500 units per year. This project has an economic life of 4 years. The project requires an investment of $580000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 3-year MACRS schedule. The depreciation rates from year 1 to 4 are 33.33%,44.45%,14.81%, and 5.76 percent, respectively. The company will sell its old equipment for $75000. The old machine is fully depreciated. The required rate of return for the project is 12.5 percent, the working capital requirement is 30 percent of the next year's sales revenue. The marginal corporate tax rate is 23 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $150000. Based on these assumptions, estimate the internal rate of return (IRR) of the project. 15.35%15.26%15.25%15.45% You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $112. The production cost of each heater is $96. You are expecting to sell 17500 units per year. This project has an economic life of 4 years. The project requires an investment of $580000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 3-year MACRS schedule. The depreciation rates from year 1 to 4 are 33.33%,44.45%,14.81%, and 5.76 percent, respectively. The company will sell its old equipment for $75000. The old machine is fully depreciated. The required rate of return for the project is 12.5 percent, the working capital requirement is 30 percent of the next year's sales revenue. The marginal corporate tax rate is 23 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $150000. Based on these assumptions, estimate the internal rate of return (IRR) of the project. 15.35%15.26%15.25%15.45%
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