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Should raffles ltd undertake the project

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Reference no: EM132534942

Raffles Ltd. is considering a new three-year expansion project with the following details:

  1. An initial fixed asset investment of $3.9 million.
  2. It also paid consultation fee of $300,000 for a feasibility study of the project one year ago.
  3. A piece of land was purchased two years ago for $15,000 and would be used for the project or it would be sold for $20,000 today.
  4. The fixed asset will be depreciated straight-line to zero in three years and the salvage value of the fixed asset will be $210,000
  5. Initial investment in net working capital will be $300,000.
  6. The project is estimated to generate $2,650,000 in annual sales with costs of $840,000.
  7. Tax rate is 35%.
  8. Discount rate is 12%.

Question 1: Should Raffles Ltd. undertake the project?

Reference no: EM132534942

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