Calculate NPV, IRR and Payback based on the information given in the problem exc
ID: 2759987 • Letter: C
Question
Calculate NPV, IRR and Payback based on the information given in the problem except for the specific numbers below
Manufacturing Equipment Cost 1,100,000 Sales Revenue increase by 1% per year
Capital Budgeting for Project X
Based on the following information for Project X, should we undertake the venture? To answer, first prepare a pro forma income statement for each year. Next calculate operating cash flow. Finish the problem by determining total cash flow and then calculating NPV assuming a 28 percent required return. Use a 34 percent tax rate throughout. Project X involves a new type of graphite composite in-line skate wheel. We think we can sell 6,000 units per year at a price of $1000 each. Variable costs will run about $400 per unit, and the product should have a four-year life. Fixed costs for the project will run $450,000 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 half of what we paid for it. We will have to invest $1,150,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales.
Explanation / Answer
0 1 2 3 4 Units 6000 6000 6000 6000 Price 1000 1000 1000 1000 Sales 6000000 6000000 6000000 6000000 Variable cost 2400000 2400000 2400000 2400000 Fixed Cost 4,50,000 4,50,000 4,50,000 4,50,000 Depreciation 25% 21.43% 15.31% 10.93% Depreciation 312500 267875 191375 136625 PBT 28,37,500 28,82,125 29,58,625 30,13,375 Tax 964750 979922.5 1005933 1024548 PAT 18,72,750 19,02,203 19,52,693 19,88,828 Fixed cost -1250000 Workig Capital -1115000 -2615000 -4115000 -5615000 -7115000 Increase in working capital -1115000 -1500000 -1500000 -1500000 -1500000 Release of WC 7115000 machine would be sold for 625000 Cashflows PAT+ Depreciation+ Investment +Increse in Wc -2365000 685250 670077.5 644067.5 83,65,453 NPV 15,64,705.96 XIRR 55% payback period 3.76
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.