a. What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers). b. Explain briefly if you think that the project is viable. c. Discuss the potential sources of long-term finance available to a large company.
You are starting a new project. This project would last 4 years. The following is the input information that you have collected:
Building cost (1.3% in the first year and then 2.6% every year) $12,000,000
Equipment cost (MACRS 5 years) $8,000,000
Net operating working capital requirement (% of Sales) 10%
First year sales (in units) 20,000
Growth rate in units sold 0%
Sales price per unit $3,000
Variable cost per unit $2,100
Fixed costs $8,000,000
Market value of building at the end of year 4 7,500,000
Market value of equipment at the end of year 4 2,000,000
Tax rate 40%
WACC 12%
Inflation growth in sales price per year 2%
Inflation growth in VC per unit per year 2%
Inflation growth in fixed costs per year 1%
a. What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
b. Explain briefly if you think that the project is viable.
c. Discuss the potential sources of long-term finance available to a large company.
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