Find the project payback period

Assignment Help Finance Basics
Reference no: EM132544526

A firm is considering a new project in a market with 20 % Corporate Tax rate, which requires an initial investment in equipment of 90,000 and also an initial investment in working capital of 10,000 (at t = 0). You expect the project to produce sales revenue of 120,000 per year for three years. You estimate manufacturing costs at 60% of revenues. (Assume all revenues and costs occur at year-end) The equipment fully depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for 10,000 and also recover the investment in net working capital.

A. Find the project's payback period, IRR, NPV and profitability index.

B. Should the company invest in the project? Explain.

C. Does your decision in (b) depend on the way the project is financed? If so, how?

Reference no: EM132544526

Questions Cloud

Higher risk premium in the market : Use the information in the following table to answer the questions in this self-test:
What will be the expected level of ebit : A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate.
What is meant by cash cycle : What is meant by cash cycle and how it can be shorten?
Computation of the free cash flow of a project : In the computation of the Free Cash Flow of a project/investment, should I compute an expense that occurred before the beginning of the project/investment?
Find the project payback period : A firm is considering a new project in a market with 20 % Corporate Tax rate, which requires an initial investment in equipment of 90,000 and also an initial in
Paying dividends and repurchasing shares : What happens to share prices when dividends are repurchased, vs. shares? Explain clearly.
How much money is tied up in this interval of time : Speedway Owl Company franchises "Gas and Go" stations in North Carolina and Virginia. All payments by franchisees for gasoline and oil products, which average
How large will the annual payments be : On 31 December, Son-Nan Chen borrowed $100,000, agreeing to repay this sum in 20 equal annual installments that include both principal and 15% interest
What is the stocks geometric average return : A stock has monthly returns of -26.47%, -06.52%, 18.19%, and 32.45%.

Reviews

Write a Review

Finance Basics Questions & Answers

  Discuss case-direct versus indirect exchange rates

Direct versus Indirect Exchange Rates Assume that during this semester, the euro appreciated against the dollar.

  Find the maturity risk premium for given year security

The real risk-free rate is 3.5%, and inflation is expected to be 2% for the next 2 years. A 2-year Treasury security yields 8.5%.

  What are examples of distributors adding value

Remember that a key part of your distribution channel strategy and selection process is how the distributor can add value to the process.

  What are primary and secondary markets

What are primary and secondary markets? What is the difference between a primary market and a secondary market? Your response should be at least 200 words in length.

  Companies use debt to finance operations

Many companies use debt to finance operations. By using leverage, a company can invest in its operations without increasing its equity.

  Use the rounded numbers in intermediate calculations

Assume that in 2009, an 1898 Morgan silver dollar sold for $9,250. What was the rate of return on this investment? ( Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations.

  Revenue gained from income tax

If the Spanish government levies a 7% tariff on exports, an 18% tariff on imports, and a 21% income tax, how will the revenue gained from tariffs and the revenue gained from income tax compare?

  Economics and the growth of modern medicine

In the history of health care delivery, the development of various types of technologies has advanced the growth of medical care. Examples of lifesaving technology include the development of the microscope

  What is windsor pre-tax cost of debt

Windsor's has a $50 million bond issue outstanding that currently has a market value of $49.5 million. The bonds mature in 12 years and pay semiannual interest payments of $40 each. What is Windsor's pre-tax cost of debt?

  Making new capital investment decisions

How do you think the company should approach the determination of its cost of capital for making new capital investment decisions?

  How much of the bill will michael pay

His health insurance plan had a $500 annual deductible and a 75/25 coinsurance provision. The cap on Michael's coinsurance share is $2000.

  What are the portfolio weights

A risk-free asset currently earns 5.1 percent. If a portfolio of the two assets has a beta of 1.06, what are the portfolio weights?

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