Based on the above information and assuming that the asset class is CLOSED calculate the NPV. Question 2-Calculate the IRR (assuming the asset class is CLOSED) Question 3 - Based on your above answers, should the company proceed with the project? Yes, No or Indifferent. Explain.
Evergreen Company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below table, and they project price per unit to be $120 per unit at the beginning. And when competition catches up after 3 years (in the 4th year), they anticipate that the price would drop to $110. This project requires $20,000 in net working capital at the beginning. Subsequently, total net working capital at the end of each year would be about 15% of total sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year. It costs about $900,000 to buy the equipment necessary to begin the production. This investment is primarily in industrial equipment and falls in Class 8 with a CCA rate of 20%. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40% and the required return is 15%.
Years Unit Sales
1 3000
2 5000
3 6000
4 6500
5 6000
6 5000
7 4000
8 3000
Question 1
Based on the above information and assuming that the asset class is CLOSED calculate the NPV.
Question 2-Calculate the IRR (assuming the asset class is CLOSED)
Question 3 - Based on your above answers, should the company proceed with the project? Yes, No or Indifferent. Explain.
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