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You are given the following data on an investment project: Investment cost 2,100,000 Annual sales 450,000 Annual costs 50% of sales Duration 15 years Working
You are given the following data on an investment project:
Investment cost | 2,100,000 |
Annual sales | 450,000 |
Annual costs | 50% of sales |
Duration | 15 years |
Working capital | 10% of next years sales |
Beta | 0.8 |
Corporate tax rate | 0 |
Risk free discount rate | 3% |
Expected market return | 7% |
- What is the discount rate for the project?
- What is the net present value of the working capital investment?
- What is the net present value of the investment as a whole?
- Discuss whether the project is an attractive investment, and what additional analysis you might want to carry out before making a final decision.
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