What is the NPV of the project and What is the IRR

Assignment Help Financial Management

Reference no: EM131070536

Your company has been approached to bid on a contract to sell 4,200 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.8 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $95,000 to be returned at the end of the project, and the equipment can be sold for $275,000 at the end of production. Fixed costs are $640,000 per year, and variable costs are $155 per unit. In addition to the contract, you feel your company can sell 9,500, 10,400, 12,500, and 9,800 additional units to companies in other countries over the next four years, respectively, at a price of $310. This price is fixed. The tax rate is 40 percent, and the required return is 10 percent. The bid price you plan to submit is $290 per unit.

What is the NPV of the project?

What is the IRR?

How much does the NPV change if you change the bid price to $289 per unit?

Reference no: EM131070536

Questions Cloud

Common valuation multiple is the price-earnings ratio : The most common valuation multiple is the price-earnings ratio. You should be willing to pay proportionally more for a stock with lower current earnings. A firm's price-earnings ratio is equal to the share price divided by its earnings per share.

What is net present value of installing the donut makers : The owners of a chain of fast-food restaurants spend $25000000 installing donut makers in all their restaurants. This is expected to increase cash flows by $11000000 per year for the next 5 years. The discount rate is 5.3%. What is the net present va..

Present value of perpetuity : Present Value of a Perpetuity What is the present value of a perpetuity of $300 per year if the appropriate discount rate is 6.96%? Round your answer to the nearest cent. $ If interest rates in general were to double and the appropriate discount rate..

What will be the debt-to-equity ratio : Reliable Gearing currently is all-equity-financed. It has 14,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $240,000 with the proceeds used to bu..

What is the NPV of the project and What is the IRR : Your company has been approached to bid on a contract to sell 4,200 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. How much d..

What is the project profitability index : Vandelay Industries is evaluating a project that costs $1,350,000 and has a 20 year life. Depreciation will be straight-line to zero over the life of the project. Management believes they will be able to sell the equipment at the end of the project f..

Capital structures-What is the break-even EBIT : Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 765,000 shares of stock outstanding. Under Plan II, there would be 515,000 shares of stock outstan..

Find bond value-current yield-capital gains yield next year : An unconventional bond offers a coupon rate of 5% for the first 5 years of the bond and 7% for the remaining 8 years of the bond. Face value is $1,000 and the yield to maturity is 8%. Find bond value, current yield, and capital gains yield this year...

Reaching financial goal : Reaching a Financial Goal You need to accumulate $10,000. To do so, you plan to make deposits of $1,100 per year - with the first payment being made a year from today - into a bank account that pays 10.86% annual interest. How many years will it take..

User Account

All Pages