Determine the project net present value

Assignment Help Finance Basics
Reference no: EM133061086

IFNA Ltd. is a pulp and paper company located in northern Ontario. IFNA Ltd. has an opportunity to undertake a project, which will increase its output in the pulp mill. The project would require an immediate $4.5 million investment in new equipment that would be added to an ongoing asset pool with a 20% accelerated investment incentive rule (ACII) capital cost allowance rate. The project would have a total life of 10 years. During the first four years, the new equipment would annually generate $1.8 million in additional cash sales and would cost an additional $700,000 for cash expenses. For the following six years, additional cash sales are expected to increase to $2.5 million, and cash expenses will increase to $1.0 million. At the end of the tenth year, the project will end and the equipment will be sold. The market value of the equipment at that time is expected to be $800,000. IFNA Ltd. is subject to tax at a rate of 40%, and a 12% cost of capital applies to this project.

Required:

a) Determine the project's net present value.

b) Recommend whether this project should be accepted, based only on the capital budgeting analysis completed in part (a).

Reference no: EM133061086

Questions Cloud

What is balance for fixed assets on Olivia balance sheet : You have the following information on Olivia's Bridle Shop: total liabilities and equity = $65 million, What is balance for fixed assets on Olivia balance sheet
What are the consolidated sales and cost of goods sold : ABC had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold
What is the contribution margin from this special offer : The Bikers' Club would reserve 140 suites for one night if the hotel accepts a price of $118 per night. What is the contribution margin from this special offer
What will abc dividend payout be : ABC Corp. has a target debt-to-equity structure of 25/75. Management has decided on a capital budget of $1.4 million for next year. Sales are forecasted at $18
Determine the project net present value : IFNA Ltd. is a pulp and paper company located in northern Ontario. IFNA Ltd. has an opportunity to undertake a project, which will increase its output in the pu
What is the swap fixed rate : You enter a 2-year pay-fixed receive-floating interest rate swap with semi-annual payments on a notional principal of $20 million and the current term structure
How much should be allocated to the retail division : The following information for 2016 is available: Actual R&D costs total 730,000. How much should be allocated to the retail division
What is balance at the end of six months : You have a balance of $4,000 on your 2% per month credit card, if you pay $50 at the end of each month, what is your balance at the end of six months?
Determining the liquidating dividend : As the financial manager of firm Mini, you are analyzing the dividend policy of the firm. You find that firm Mini can either pay out dividends of $2 per share e

Reviews

Write a Review

Finance Basics Questions & Answers

  Compute trend percents for the individual items of both

selected comparative financial statements of cohorn company followcohorn companycomparative income statement 000for

  Compare and contrast the complexity and components of the

Compare and contrast the complexity and components of the school budget between a high school, middle school and elementary school.

  What are two measures of cash flows used in valuation

What is the difference between an infinite-period and a finite-period dividend discount model?

  Social and charges a fair price for his services

Frank Smith has been a plumber in the college town of Turlock, CA for the last thirty years. All the people who know him call him Frankie because he is friendly, social, and charges a fair price for his services.

  Required rate of return for the project

What is the NPV of the project, if the restaurant pays tax 30% and the required rate of return for the project is 8% p.a.?

  How much would you have for a down payment at end of year

Your expected annual return is 5%. How much would you have for a down payment at the end of Year 4? Round your answer to two decimal places.

  What were bradywine net income

Expenses other than depreciation totaled 75% of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses, other than depreciation, were paid in cash.

  Define the sources and target market value proportions

SIU Corp, has determined its optimal capital structure which is composed of the following sources and target market value proportions.

  Super jackpot lottery

You recently won the super jackpot lottery. You discover that you have the following two options: (a) You receive 31 annual payments of $160,000

  Standard deviation of group of scores

Using the numbers above, determine the range, interquartile range, and standard deviation of this group of scores (measures of variability).

  Challenge for many companies doing business abroad

It is a challenge for many companies doing business abroad. How can companies protect themselves form currency fluctuation? Is there a way?

  Sarah capital gain per share in australia

Sarah purchased a share one year ago at a price of $32AUD when the exchange rate was $0.85 USD/AUD. In the past year

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd