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New factory = $10,000,000 Tear down Old factory which cost to build = $2,000,000 Instead of building new factory, can sell the land for = $500,000 New factory has a life of 5 Years but the project is 4 years so depreciate straight line over 5 years Salvage Value at the end of 4 years = $1,000,000 Revenue= $5,000,000 per year Variable Costs = $1,000,000 per year Fixed Costs excluding depreciation = $500,000 WACC=10% Tax Rate = 30% WHAT’S THE NPV OF THIS PROJECT

New factory = $10,000,000 Tear down Old factory which cost to build = $2,000,000 Instead of building new factory, can sell the land for = $500,000 New factory has a life of 5 Years but the project is 4 years so depreciate straight line over 5 years Salvage Value at the end of 4 years = $1,000,000 Revenue= $5,000,000 per year Variable Costs = $1,000,000 per year Fixed Costs excluding depreciation = $500,000 WACC=10% Tax Rate = 30% WHAT’S THE NPV OF THIS PROJECT

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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New factory = $10,000,000

Tear down Old factory which cost to build = $2,000,000

Instead of building new factory, can sell the land for = $500,000

New factory has a life of 5 Years but the project is 4 years so depreciate straight line over 5 years

Salvage Value at the end of 4 years = $1,000,000

Revenue= $5,000,000 per year

Variable Costs = $1,000,000 per year

Fixed Costs excluding depreciation = $500,000

WACC=10%

Tax Rate = 30%

WHAT’S THE NPV OF THIS PROJECT

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