Solution-Compute the project ocf, A company is considering

Compute the project ocf

Reference no: EM133076579

A company is considering a new 4-year expansion project that requires an investment of $200,000 for new equipment, plus an extra $10,000 for shipping and $30,000 for installation. The fixed assets will be depreciated straight line to zero over 4 years, after which, it will have a salvage value of $96,000. The project requires an initial investment of $30,000 in NOWC, 80% of which will be recovered at the end of the project. Expected annual unit sales are 1,250 with sale price and cost per unit of $200 and $100, respectively. The tax rate is 40% and the required return (i.e. the WACC) is 10%.

	Baseline:
WACC	10%
Tax Rate	40%
Equipment Cost	$200,000
Shipping	$10,000
Installation	$30,000
Salvage Value	$96,000
Project Life (Years)	4
NOWC Investment	$30,000
NOWC Recovery Rate	80%
Units Sold / Year	1250
Unit Price	$200
Cost per Unit	$100

What will be the initial cash flow for the project (FCF₀)?
Compute the project's OCF.
Determine the after-tax salvage value of the equipment.
Find the project's net present value and indicate whether the project should be accepted.
Determine the sensitivity of NPV to the cost per unit, i.e. ?NPV / ?Cost per Unit.

Reference no: EM133076579

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Compute the project ocf

Reference no: EM133076579

Reference no: EM133076579

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