Project A involves a new type of graphite composite in-line skate wheel We think we can sell 6.000 units per vear at a price of Rs 1.000 each. Variable costs will run about Rs 400 per unit and the product should have a four-year lite Fixed costs for the project will run Rs 450,0000 per year. Further, we will need to invest a total of 1, 250, 000 in manufacturing equipment. This equipment is seven-year MACRS property for tax purposes. In four years, the equipment will be worth about halt of what we paid for it. We will have to invest Rs 1.150,000 in net working capital at the start. After that net working capital requirements will be 25 percent of sales Based on above information for project A should we undertake the venture Assume a 28 percent required return. Use a 34 percent tax rate throughout the project life
Project A involves a new type of graphite composite in-line skate wheel We think we can sell 6.000 units per vear at a price of Rs 1.000 each. Variable costs will run about Rs 400 per unit and the product should have a four-year lite Fixed costs for the project will run Rs 450,0000 per year. Further, we will need to invest a total of 1, 250, 000 in manufacturing equipment. This equipment is seven-year MACRS property for tax purposes. In four years, the equipment will be worth about halt of what we paid for it. We will have to invest Rs 1.150,000 in net working capital at the start. After that net working capital requirements will be 25 percent of sales Based on above information for project A should we undertake the venture Assume a 28 percent required return. Use a 34 percent tax rate throughout the project life
Step by step
Solved in 4 steps with 4 images
