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 $8,0
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 $8,0
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
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Question
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 |
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% |
- Explain briefly if you think that the project is viable.
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