Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.45 million. The marketing department predicts that sales related to the project will be $2.63 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $185,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 22 percent and the required return for the project is 12 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV $2,465,928.16. Should the company proceed with the project? Yes No
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.45 million. The marketing department predicts that sales related to the project will be $2.63 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $185,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 22 percent and the required return for the project is 12 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV $2,465,928.16. Should the company proceed with the project? Yes No
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:Medavoy Company is considering a new project that complements its existing business.
The machine required for the project costs $4.45 million. The marketing department
predicts that sales related to the project will be $2.63 million per year for the next four
years, after which the market will cease to exist. The machine will be depreciated to zero
over its 4-year economic life using the straight-line method. Cost of goods sold and
operating expenses related to the project are predicted to be 25 percent of sales. The
company also needs to add net working capital of $185,000 immediately. The additional
net working capital will be recovered in full at the end of the project's life. The corporate
tax rate is 22 percent and the required return for the project is 12 percent. What is the
value of the NPV for this project? (Do not round intermediate calculations and enter
your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89.)
NPV
$2,465,928.16.
Should the company proceed with the project?
O Yes
No
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