Abc corporationnbspnbspis considering an expansion

Assignment Help Finance Basics

Reference no: EM13621799

ABC Corporation is considering an expansion project. To date they have spent $150,000 investigating the viability of the project and have decided to proceed. The proposed project will cost $1,500,000 in addition to the $150,000 that was spent on the feasibility study. The project will be depreciated over a 3 year MACRS class life.

MACRS

Depreciation

Year Rates

1 0.33

2 0.45

3 0.15

4 0.07

If the project is undertaken the company will need to increase its inventories by $500,000, and its accounts payable will rise by $200,000. The company will realize an additional $1,500,000 in sales over each of the next four years. The company's operating costs (not including depreciation) will increase by $750,000 a year. The company's tax rate is 34%. At t = 3, the project's economic life is complete, but it will have a salvage value (before-tax) of $150,000 after three years. The project's WACC is 12%.

a) What is the project's net present value (NPV)? What is the IRR?

b) Write a short memo to management explaining your analysis and making a recommendation. Should the project be accepted? Why or why not? (i.e. Explain what your numerical answer means.)

Reference no: EM13621799

Questions Cloud

Your investment bankers have determined that the stock : use the dividend growth model to determine the rate of return for equity. your firm intends to issue new common stock.

A construction company figures the cost of a project based : a construction company figures the cost of a project based on an average idle time of 68 minutes per worker per 8 hour

Air enters the compressor of an air-standard brayton cycle : air enters the compressor of an air-standard brayton cycle at 100kpa 300k with a volumetric flow rate of 5m3s. the

A 72 mm focal-length lens is used to focus an image on the : a 72 mm focal-length lens is used to focus an image on the film of a camera. the maximum distance allowed between the

Abc corporationnbspnbspis considering an expansion : abc corporationnbspnbspis considering an expansion project.nbspnbspto date they have spent 150000 investigating the

Assume that this process is reversible a draw a schematic : a closed tank v 0.35 ft3 containing 10 lbm of water initially at 77f is heated to 350f by a heat pump that is

Deer ticks wildlife biologists inspect 153 deer taken by : deer ticks wildlife biologists inspect 153 deer taken by hunters and find 32 of them carrying ticks that test positive

If the boat heads due north to the earth determine the : a boat crossing a wide river moves with a speed of 10 kmh relative to water. the water in the river has a uniform speed

Sketch the cycle on p-v and t -s diagram determine t2 in r : a quantity of air undergoes a thermodynamic cycle consisting of three internally reversible processes in series process

User Account

All Pages