Question
You have been asked to evaluate a capital budgeting project using a NPV analysis. The initial upfront investment will be $125,000 with a salvage value
You have been asked to evaluate a capital budgeting project using a NPV analysis. The initial upfront investment will be $125,000 with a salvage value of $40,000. The appropriate CCA Rate is 30%. Sales for the first year are expected to be 8000 units and unit sales are expected to grow 10% per year. The appropriate discount rate is 8%, while the tax rate is 28%. Initial upfront Net Working Capital needed will be $5,000 and thereafter is expected to be 10% of Sales. The inflation rate is expected to be 5%. Initially it is expected that it will cost $3.25 to make each unit, while each unit will have an initial sales price of $7.50. First year Fixed Costs are expected to be $7,000. All prices and costs are expected to increase at the rate of inflation. The project is expected to last three years.
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