Project evaluation and capital investment

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Reference no: EM131874393

Project Evaluation & Capital Investment

Volume: 52,000 units --- 57,000 units --- 61,000 units

Price: $4.50 per unit --- $4.25 per unit --- $3.85 per unit

Marginal Cost: $3.25 per unit --- $2.50 per unit --- $2.20 per unit

Expected Life of Project: 3 years

Fixed Costs: $14,000 per year

Capital requirement: $100,000 (90% depreciated over the 3-year span)

Market value of equipment in 3 years: $10,000

Charge to Net Working Capital: $30,000 (at t = 0, then recapture at t = 3)

Tax rate: 34%

Risk free rate (3-year): 2.5%

Total Market Return: 9.95%

Project Beta: 2.30

Project Debt/Equity Structure: 0.70

Cost of Debt (pretax): 5.5%

Find the following:

1. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 1

2. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 2

3. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 3

4. Cost of Equity Capital

Reference no: EM131874393

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