Waste Management Inc. is analyzing an average-risk project, and the following data have been developed. Unit...

Waste Management Inc. is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price will increase with inflation. Fixed costs will also be constant, but variable costs will rise with inflation. The project should last for 3 years, and there will be no salvage value. This is just one project for the firm, so any losses can be used to offset gains on other firm projects. What is the project's expected NPV? IRR? Would you accept this project?

WACC

9.50%

Net investment cost (depreciable basis)

$100,000

Units sold

40,000

Average price per unit, Year 1

$25.00

Fixed op. cost excl. depr'n (constant)

$150,000

Variable op. cost/unit, Year 1

$20.20

Annual depreciation rate

33.33%

Expected inflation

5.00%

Tax rate

40.0%

Please show work.

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Expert Solution

jeff jeffy answered 1 year ago

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