What is the npv of the project

Assignment Help Managerial Accounting

Reference no: EM133589267

Question 1: ABC corporation projects their future unit sales for a new headphone. The projected unit sales are as below.

1	2	3	4	5
Unit sales	70000	80000	120000	100000	90000

To produce the headphones, the initial net working capital of $2,000,000 is required and additional net working capital is also required each year, which is 20% of the projected sales increase for the following year. The net working capital will be recovered at the end of a project. In addition, the initial installation cost of the machine for production is $20,000,000. The machine will be depreciated for tax purposes using straight-line depreciation with the useful life of 8 years. Also, costs and unit price are as below.

Fixed cost	$3,250,000 per year
Variable cost	$280 per unit
Price	$425 per unit

In five years, the machine can be sold for about 20% of its acquisition cost. The tax rate is 30% and the required rate of return is 18%.

Required

What is the NPV of the project? Explain and defend your processes, answer, and calculations clearly.

Assuming that the project can be repeated indefinitely, what is the NPV of the project? Suppose that there is another project with the NPV of $4 million and the NPV∞ of $6 million. Which project would you choose, assuming that two projects are mutually exclusive and can be repeated indefinitely? Why? Explain and defend your processes, answer, and calculations clearly.

Reference no: EM133589267

Questions Cloud

What was the overapplied or underapplied overhead : Actual manufacturing overhead costs incurred during the year totalled $270,000, actual direct labour hours were 105,000. What was the overapplied

Describe the purpose of forecasting : Describe the purpose of forecasting for strategic business planning, sales and operations planning, and master production scheduling

Why child welfare emalahleni should be regarded as a social : Give reasons why Child Welfare Emalahleni should be regarded as a social service organisation. Discuss how you would apply the planning, organising, leading

What specific data and information would you need : How would you go about conducting a cost-volume-profit (CVP) analysis for the potential new product line in your company?

What is the npv of the project : The machine will be depreciated for tax purposes using straight-line depreciation with the useful life of 8 years

Define the ethical limitations and boundaries of your chosen : What organization helps to define the ethical limitations and boundaries of your chosen career path? Which of the ethical dilemmas discussed in class or found

What is difference between counseling theory and counseling : What is the difference between counseling theory and counseling practice and explain how they could (or should) be used together effectively?

What were the concerns raised in the form of experimentation : Behaviorist John B. Watson studied experimental psychology from the consciousness. What were some of the concerns raised in this form of experimentation?

Why is it important to use positive language in business : Why is it important to know your audience when writing a business message? Why do you think readers and listeners are more likely to respond positively

User Account

All Pages