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Apex investing in a new project for expansion

Assignment Help Basic Computer Science
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?

Reference no: EM131051598

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