Calculate the initial outlay of the project

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Reference no: EM13921907

FITCO Inc. is a Pharmaceutical Company which is considering investing in new equipment for the production of pain-reliever medicine for individuals who suffer from cardio vascular diseases. The new equipment will cost $2,000,000, and an additional $100,000 is needed for installation. The equipment which falls into the MACRS 5-yr class would be sold after five years for $150,000.

The equipment will generate additional annual revenues of $965,000, and will have annual operating expenses of $300,000. An inventory investment of $60,000 is required during the life of the project. FITCO is in the 30 percent tax bracket, and has the same risk as the firm’s existing assets. Its existing cost of capital is 15 percent.

(a) Calculate the initial outlay of the project

(b) Calculate the annual after-tax operating cash flows for years 1 to 5

(d) What is the project NPV (rounded to the nearest hundred?)

(e) What is the estimated IRR of the project (up to 2 decimal places?)

(f) Should the project be accepted based on the IRR Criterion?

Reference no: EM13921907

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