You are starting a new project. This project would last 4 years. The following is the input information that you have collected: Building cost (1.3% in the first year and then 2.6% every year) $12,000,000 Equipment cost (MACRS 5 years) $8,000,000 Net operating working capital requirement (% of Sales) 10% First year sales (in units) 20,000 Growth rate in units sold 0% Sales price per unit $3,000 Variable cost per unit $2,100 Fixed costs $8,000,000 Market value of building at the end of year 4 7,500,000 Market value of equipment at the end of year 4 2,000,000 Tax rate 40% WACC 12% Inflation growth in sales price per year 2% Inflation growth in VC per unit per year 2% Inflation growth in fixed costs per year 1% What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers). Explain briefly if you think that the project is viable. Discuss the potential sources of long-term finance available to a large company
You are starting a new project. This project would last 4 years. The following is the input information that you have collected: Building cost (1.3% in the first year and then 2.6% every year) $12,000,000 Equipment cost (MACRS 5 years) $8,000,000 Net operating working capital requirement (% of Sales) 10% First year sales (in units) 20,000 Growth rate in units sold 0% Sales price per unit $3,000 Variable cost per unit $2,100 Fixed costs $8,000,000 Market value of building at the end of year 4 7,500,000 Market value of equipment at the end of year 4 2,000,000 Tax rate 40% WACC 12% Inflation growth in sales price per year 2% Inflation growth in VC per unit per year 2% Inflation growth in fixed costs per year 1% What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers). Explain briefly if you think that the project is viable. Discuss the potential sources of long-term finance available to a large company
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
Related questions
Question
You are starting a new project. This project would last 4 years. The following is the input information that you have collected:
Building cost (1.3% in the first year and then 2.6% every year) |
$12,000,000 |
Equipment cost (MACRS 5 years) |
$8,000,000 |
Net operating working capital requirement (% of Sales) |
10% |
First year sales (in units) |
20,000 |
Growth rate in units sold |
0% |
Sales price per unit |
$3,000 |
Variable cost per unit |
$2,100 |
Fixed costs |
$8,000,000 |
Market value of building at the end of year 4 |
7,500,000 |
Market value of equipment at the end of year 4 |
2,000,000 |
Tax rate |
40% |
WACC |
12% |
Inflation growth in sales price per year |
2% |
Inflation growth in VC per unit per year |
2% |
Inflation growth in fixed costs per year |
1% |
- What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
- Explain briefly if you think that the project is viable.
- Discuss the potential sources of long-term finance available to a large company
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College