Reference no: EM132761951
Joanne Inc, is considering investing in a new project, based on information given:
a. Prepare The Total Cash Flow Projection.
b. Calculate the NPV and Payback Period of this project. (Preset time for Payback Period is 3,5 years).
c. Should this new project be accepted or rejected?
Projected unit sale for a new project, as follows:
Year Unit Sales
2022 125,000
2023 135,000
2024 140,000
2025 145,000
2026 150,000
Year 2022 2023 2024 2025 2026
Fixed Cost ($) 1,100,000 1,100,000 1,100,000 1,100,000 1,100,000
Variable Cost ($) 225 225 235 240 250
Sales Price ($) 275 275 280 285 290
The cost of new equipment $8,000,000 and fee for consultant is $ 80,000. The equipment will be depreciated on a straight-line method over five years and the machine will have no salvage value at the end of the project. This project needs an initial working capital requirement of $ 455,000 and then rises to 10 percent of sales for each year. The relevant tax rate is 35 percent, with a 11 percent required rate of return.
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