Reference no: EM133059256

Question - IBL PROJECT - Company X has to consider the IBL project that can increase the value of the company overall.

The company pays 18% tax. The company will also receive an interest return on the additional fund that will be invested and receive income of $3400.

The salvage value of the CAPEX is $13000 and after the project the company can sell the asset for $7000.

Project A

CAPEX $26,700

Rent expense $2700

Supplies expense $2750

Prepaid expense $1500

Utilities expense $1800

Insurance expense $500

Unearned Revenue $3200

Gas Expense $520

Project period 5 years

Sales $10,500

Discount rate table

GDP 3%

Risk free 6%

Risk premium 2.5%

Interest Rate 8%

REQUIRED -

1. Calculate the initial investment, After tax cash flow and terminal value of the project.

2. Calculate the discounted payback period of the project.

3. Estimate the NPV and PI of the project.

4. What is the IRR of the project?

Project B's results are given on the table below

DPBP 3 years

NPV + 2200

PI 1.20

IRR 15%

Payback Period 2.8 years

5. Considering project B which one is the best and why?