Fairfax paint is evaluating two-year project

Assignment Help Financial Management

Reference no: EM132032591

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 420,000 dollars that would be depreciated to 20,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 26,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 420,000 dollars. The firm would receive 420,000 dollars from the bank today and would pay the bank $0 in 1 year and 477,246 dollars in 2 years (consisting of an interest payment of 57,246 dollars and a principal payment of 420,000 dollars). Relevant annual revenues are expected to be 348,000 dollars in year 1 and 380,000 dollars in year 2. Relevant annual costs are expected to be 92,000 dollars in year 1 and 88,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 9.28 percent and the interest rate on the loan would be 6.6 percent. What is the net present value of the project?

Reference no: EM132032591

Questions Cloud

Considering buying purification system : Oxygen Optimization is considering buying a new purification system. what is the net present value of the new purification system project?

Project would require initial investment in equipment : What is the NPV of project A. The project would require an initial investment in equipment of 34,000 dollars and would last for either 3 years or 4 years

Litchfield design is evaluating three-year project : Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 190,000 dollars today.

The momentum effect is against market efficiency : Which model would suggest the momentum effect is against market efficiency?

Fairfax paint is evaluating two-year project : Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 420,000 dollars that would be depreciated to 20,000 dollars over 2 years

Noticed significant decrease in the profitability : EnterTech has noticed a significant decrease in the profitability of its line of portable CD players.

What is your new semiannual interest payment : What is your new semiannual interest payment? What would the par value be at maturity, assuming 2.50 percent annual inflation rate and ten-year maturity period?

Prepare monthly schedule of cash receipts : Prepare a monthly schedule of cash receipts. Sales in the December before the planning year were $100,000. Prepare a monthly schedule of cash receipts.

Difference between primary and secondary markets : Explain the difference between primary and secondary markets and why secondary markets are so important to businesses that need to raise capital?

User Account

All Pages