Reference no: EM131051598

In this Assignment you will assess the feasibility of Apex investing in a new project for expansion of its business.  The specifications of the project are as follows:

• An initial investment of $30,000,000 today
• Revenues from the project projected to be $22,000,000 at the end of each of the next 5 years
• Cost of Goods Sold (variable costs) is assumed to be 50% of revenue in each of those years
• Equipment purchased for the project will cost $25,000,000 of that initial investment; the rest is for working capital
• Depreciation of the equipment is straight line with a 5 year useful life and a salvage value at the end of the 5th year of $1,000,000
• S,G,&A (fixed overhead) from the project estimated at 10% of revenues throughout
• Apex is in the 40% tax bracket
• Due to taking on more leverage than their current capital structure, Apex cost of capital in this project = 10%

Step One:

• Use the proper TVM tables previously provided to you for discount factors for cash flows
• Set up a spreadsheet showing year-by-year net cash flows from this project
• Calculate the NPV for the project
• Answer the question: Is this project acceptable for Apex?

Step Two:

• Using the IRR financial function in Excel, calculate the IRR for this project
• Answer the question: Is the IRR sufficient for the project to be acceptable for Apex?