Calculate Project NPV and IRR

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Reference no: EM132055338

CAPITAL BUDGETING PROBLEM

Cashman Corp. is considering venturing into the very mysterious Project Z. Information on Project Z follows below. Cashman’s marginal tax rate is 34%. Calculate Project Z’s NPV and IRR. Should Cashman accept Project Z?

Project Z is a 4 year project; the required return on project Z is 12%.

Initial (up front) investment is $1,200,000

Annual revenues estimated at $4,000,000

Annual expenses (not including depreciation) estimated at $2,900,000

Depreciation for tax purposes is based on 6 year life, straight line, to zero book value at end of 6 years

At the end of the project (in year 4), will sell Project Z for expected market value of $500,000

Net Working Capital: initial investment required is $1,100,000 (up front); after that, NWC levels decrease by $275,000 per year.

Reference no: EM132055338

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