ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require thepurchase of a $792,400.00 work cell. Further, it will cost the firm $59,300.00 to get the work cell delivered andinstalled. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will requirenew employees to be trained at a cost of $65,100.00. The project will also use a piece of equipment the firmalready owns. The equipment has been fully depreciated, but has a market value of $6,000.00. Finally, the firm willinvest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful.The project will generate annual sales of $901,000.00 with expenses estimated at 36.00% of sales. Net workingcapital will be held constant throughout the project. The tax rate is 37.00%.The work cell is estimated to have a market value of $488,000.00 at the end of the fourth year. The firm expects toreclaim 81.00% of the final NWC position.The cost of capital is 11.00%.What is the NPV the project if we end the project after 4 years?

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: ABC Corporation has hired you to…

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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ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $843,200.00 work cell. Further, it will cost the firm $51,700.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $59,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,200.00. Finally, the firm will invest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 38.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $489,000.00 at the end of the fourth year. The firm expects to reclaim 85.00% of the…
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