Should the company accept the project

Assignment Help Financial Management

Reference no: EM13953698

Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $284,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $119,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 4 percent. Production costs at the end of the first year will be $44,000, in nominal terms, and they are expected to increase at 5 percent per year. The real discount rate is 7 percent. The corporate tax rate is 40 percent. Sanders has other ongoing profitable operations.

Calculate the NPV of the project. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV $

Should the company accept the project?

Reject

Reference no: EM13953698

Questions Cloud

Considering the construction of a new plant : Microwave Oven Programming, Inc is considering the construction of a new plant. The plant will have an initial cash outlay of $8.3 million (= -$8.3 million), and will produce cash flows of $3.3 million at the end of year one, $5.3 million at the end ..

Capital investment is expected to achieve long-term benefits : A capital investment is expected to achieve long-term benefits for the organization. These benefits generally fall into three categories. Identify and discuss these categories. Is there one category that seems to be more important than the others? Ar..

Conveyor belt systems-pretax annual operating costs : Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs.

What is sparkling worth today : Sparkling Water, Inc., expects to sell 2.81 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.30 in real terms and will cost $.91 in real terms. Sales income and costs occur at year-end. What is Sparkli..

Should the company accept the project : Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $284,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..

Present value of the net cash flows from operations : Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $201,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per year ..

Both firms have positive net income : Firms U and L each have the same amount of assets, and both have a basic earning power ratio of 20%. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L is financed with 50% debt and 50% equity. Firm L's debt has a before-tax cost o..

These assets are considered to be operating assets : If a company holds its diversified portfolio the small portion of stocks of another company, that conducts operating activities in the same industry, than these assets are considered to be operating assets?

Interest rates and equity capital costs : If the price of money (e.g., interest rates and equity capital costs) increases due to an increase of anticipated inflation, the risk-free rate will also increase. If there is no change in investment aversion, then the market risk premium (r_M - r_RF..

User Account

All Pages