**Project Evaluation Scenario**Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 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 $175,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 25 percent and the required return for the project is 10 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.)[Graph/Box for NPV calculation]Should the company proceed with the project?- Yes- No---**Explanation of NPV Calculation:**The NPV (Net Present Value) calculation will take the projected cash flows for each year, adjust for costs and taxes, and discount them back to the present using the required return rate of 10%. The initial outlay includes the machine cost and net working capital. The final step includes recovering the net working capital at the end of the project.

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

Answered: Medavoy Company is considering a new…

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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Chartreuse Co. has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of four years. The depreciation schedule for the machine is straight-line with no salvage value. The machine costs $468,000. The sales price per pair of shoes is $59, while the variable cost is $13. Fixed costs of $167,000 per year are attributed to the machine. The corporate tax rate is 22 percent and the appropriate discount rate is 7 percent. What is the financial break-even point? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Financial break-even 6,173.91 units
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Bhupatbhai
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