mployees at JPGR Inc have been busy evaluating a potential new $9 million investment for their firm that would last 9 years. The operations and inventory managers believe that the firm would not need to invest now in net working capital (NWC), but expect that expenses will increase by $5.65 million per year, starting a year from now. The marketing team believes that sales will vary year to year, but equate to a $7.45 million annuity, starting a year from now. The investment assets will be depreciated to zero over the life of the project, but should yield scrap value of $550,000. The firm faces a 30% tax rate and the firm would require a return of 12.5% APR compounded annually on this project. (A) What is the NPV of the project? (B) Based on value reached in part (A), should the firm accept or reject the project? (C) By what percent would projected sales have to rise or fall to reverse the above decision?
Employees at JPGR Inc have been busy evaluating a potential new $9 million investment for their firm that would last 9 years. The operations and inventory managers believe that the firm would not need to invest now in net working capital (NWC), but expect that expenses will increase by $5.65 million per year, starting a year from now. The marketing team believes that sales will vary year to year, but equate to a $7.45 million
(A) What is the
(B) Based on value reached in part (A), should the firm accept or reject the project?
(C) By what percent would projected sales have to rise or fall to reverse the above decision?
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