Lowell Inc. projects unit sales for a new project with a life of FOUR YEARS as follows:Year123Unit Sales10,00012,00014,00016,000Production will require Lowell must have an amount of NOWC on hand equal to 9 percent of the upcoming year's sales. Total fixed costs are $100,000 per year, variable production costs are $230 perunit, and the units are priced at $300 each. The sale price and variable costs will increase by 2 percent every year. The equipment needed to begin production has an installed cost of $2,000,000. Theequipment qualifies as 5-year MACRS property.Years134Depreciation rate20%32%19%12%In FOUR years, this equipment can be sold for about 21 percent of its acquisition cost. Lowell is in the 25 percent marginal tax bracket and has a required return on all its projects of 18 percent. Basedon these preliminary project estimates, what is the IRR of the project?17.17%22.55%11.40%12.05%

Step 1:To calculate the Internal Rate of Return (IRR) of the project, we need to determine the net…

Answered: Lowell Inc. projects unit sales for a…

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

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