Question
You just finished calculating the NPV of project A and found it to be $49,242. A concurrent project, which will use the same resources as
You just finished calculating the NPV of project A and found it to be $49,242. A concurrent project, which will use the same resources as project A is now before you as well. This is project B, which will require a $2M investment in an asset that will have a $1M salvage value at the end of the project. A total of $170,000 was invested in the consulting and research leading to the marketability of the product. Project B will generate annual sales of $1.5M and total costs of $1.1M. The firms cost of capital is 7.5%, its tax rate is 30%, and the CCA depreciation for this asset is 20%. Project B will trigger a net change in working capital of $130,000. The project will last 6 years. Calculate the NPV of this project and say clearly whether you would accept it. You must show your work to get full points. 12 points.
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