A business opportunity has presented itself to you and one of your classmates. Your opportunity is to enter the fast growing craft beer industry. Your projected sales in the first year is 7500 kegs. Your projected growth rate is 8 percent. Entering the business will require $35,000 of net working capital. Total fixed costs are $95,000. Variable production costs are $30 per keg and keg sales are priced at $55 each. The equipment to begin production is $175,000. The equipment will be depreciated using straight line depreciation over a five year life and has no salvage value. The tax rate is 34 percent and the required return is 30 percent. What is the NPV of the project and should you pursue the project?
A business opportunity has presented itself to you and one of your classmates. Your opportunity is to enter the fast growing craft beer industry. Your projected sales in the first year is 7500 kegs. Your projected growth rate is 8 percent. Entering the business will require $35,000 of net working capital. Total fixed costs are $95,000. Variable production costs are $30 per keg and keg sales are priced at $55 each. The equipment to begin production is $175,000. The equipment will be depreciated using straight line depreciation over a five year life and has no salvage value. The tax rate is 34 percent and the required return is 30 percent. What is the NPV of the project and should you pursue the project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A business opportunity has presented itself to you and one of your classmates. Your opportunity is to enter the
fast growing craft beer industry. Your projected sales in the first year is 7500 kegs. Your projected growth rate
is 8 percent. Entering the business will require $35,000 of net working capital. Total fixed costs are $95,000.
Variable production costs are $30 per keg and keg sales are priced at $55 each. The equipment to begin
production is $175,000. The equipment will be depreciated using straight line depreciation over a five year life
and has no salvage value. The tax rate is 34 percent and the required return is 30 percent. What is the NPV of
the project and should you pursue the project?
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