Analyze this project and give your recommendation

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Reference no: EM133633823

Finance mini-case analysis:

A company intends to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales:

Year 1 Year 2 Year 3 Year 4 Year 5

50,000 66,400 81,200 68,500 54,500

The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device sells at $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or abandon it.

Answer the following questions:

- Submit the 5-year cash flows for this project - do not forget to start off with the initial NWC requirements at time zero and include the changes year on year - till the final reversal in the terminal year.

- Include the ATSV in the terminal year.

- Do you recommend the firm invest in this project? Why or why not?

Reference no: EM133633823

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