Question
Your company is considering a five-year project that will require 840,000 for new manufacturing machinery that will be depreciated straight-line to a zero-book value over
Your company is considering a five-year project that will require 840,000 for new manufacturing machinery that will be depreciated straight-line to a zero-book value over five years (depreciation rate is 20% per year). At the end of the project, the machinery can be sold for 16% of its original cost. The project requires an initial investment in net working capital of 92,000, all of which will be recovered at the end of the project. The project is expected to generate annual sales of 780,000 with annual costs of 324,000. The tax rate is 21 percent, and the required rate of return is 19 percent.
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