Solution-Calculate the net present value of the project

Calculate the net present value of the project

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Reference no: EM132766570

The following table summarizes sales forecasts for Ridout Corp. The unit price is $40. The unit cost is $25. In addition, annual fixed expenses are expected to be $35,000.

Year Unit Sales
1 22,000
2 30,000
3 14,000
4 9,000
5 5,000
Thereafter 0

Ridout has developed a new improved water flow system that requires an additional investment of $425,000. Old equipment is the same asset class (25% CCA rate) can be sold for $25,000. After 5 years the asset will have a value of zero. The firm's tax rate is 35%.

The net working capital requirement (including the initial working capital needed in year 0) is expected to be 25% of the following years sales. The company requires a 12% return on projects of this nature.

REQUIRED:

Calculate the net present value of the project to determine if the company should invest in this equipment. Show all calculations.

Reference no: EM132766570

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Calculate the net present value of the project

Reference no: EM132766570

Reference no: EM132766570

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