Present detailed yearly cash flows of the project

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Alpha Dairy is a new project by Shulton Company. It is intended to produce and sell dairy products. The dairy processing equipment costs $100,000 including freight and installation. It will depreciate by the straight line method to zero book value over its estimated life of 5 years. The plant will be housed in a building that was being rented to a nearby store at $12,000 per year. Alpha Dairy requires increase in inventories of $10,000 at the start, which will be recovered at the end of the project's life. The dairy processing equipment can be sold for $10,000 at the end of year 5.

Expected sales will be $60,000 per year. Operating costs equal 30% of sales. The applicable tax rate is 30%. The WACC is 12%.

  1. Present detailed yearly cash flows of the project.
  2. Calculate the NPV and payback period of this project
  3. Should this project be undertaken?

Reference no: EM132383930

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