Find the internal rate of return and net present value

Assignment Help Business Economics

Reference no: EM13836220

Show work and explain please for lifesaver...

Top Inc. is interested in developing a new toy. The toys will sell for $25 each and they plan to sell 10 million toys at the end of each year for 4 years. Variable costs are $20 per toy; fixed costs are $10,000,000 per year. The interest expense is $3,000,000 per year. The project requires an additional machine that costs $120,000,000 to be depreciated to a zero book value on a straight line basis over 4 years. The machine has a salvage value of $20,000,000. The tax rate is 40%.The initial investment in net working capital is $5,000,000.No additional net working capital is needed for the project and no net working capital will be returned. The variable and fixed costs do not include the depreciation and the interest expenses. There is no horizon value.

A: If the cost of capital is 8%, find the net present value.

B: Find the internal rate of return.

C: Do you accept the project? Explain.

Reference no: EM13836220

Questions Cloud

The risk-free rate : A stock has an expected return of 13.2 percent and a beta of 1.18, and the expected return on the market is 12.2 percent. What must the risk-free rate be?

Expected return on stock : A stock has a beta of 1.15, the expected return on the market is 10.9 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be?

Expected return on the portfolio : You own a portfolio that has $3,200 invested in Stock A and $4,300 invested in Stock B. Assume the expected returns on these stocks are 12 percent and 18 percent, respectively. What is the expected return on the portfolio?

Find the current price : Hollow just paid a dividend of $1.68.They expect dividends to grow at 10% for the next 3 years. After year 3, the growth rate will fall to the industry average of 3%.If the required return is 8%, find the current price.

Find the internal rate of return and net present value : Top Inc. is interested in developing a new toy. The toys will sell for $25 each and they plan to sell 10 million toys at the end of each year for 4 years. Variable costs are $20 per toy; fixed costs are $10,000,000 per year. If the cost of capital is..

What is the current market value of this stock : The Diamond Outlet has current earnings per share of $1.96 and an expected earnings growth rate of 2.2%, the required return on the stock is 13% and current book value per share is $12.70. What is the current market value of this stock?

What is the real risk-free rate of return : Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 4.50% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithme..

Cost of equity capital using arithmetic average growth rate : Suppose In a Found Ltd. just issued a dividend of $1.52 per share on its common stock. The company paid dividends of $1.20, $1.26, $1.33, and $1.44 per share in the last four years. If the stock currently sells for $55, what is your best estimate of ..

How would you compute the tax benefits : Assume that you are Best Buys, the electronics retailer, and that you would like to enter the hardware component of the market. You have been approached by investment bankers for Zenith, which while still a recognized brand name, is on its last legs ..

User Account

All Pages