Question

In: Finance

Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...

Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.

WACC

10.0%

Net investment cost (depreciable basis)

$200,000

Units sold

58,000

Average price per unit, Year 1

$25.00

Fixed op. cost excl. depr. (constant)

$150,000

Variable op. cost/unit, Year 1

$20.20

Annual depreciation rate

33.333%

Expected inflation rate per year

5.00%

Tax rate

40.0%

a.

$66,796

b.

$75,339

c.

$92,426

d.

$77,669

e.

$61,359

If you can explain the steps for inflation portion, it would be appreciated. Thanks

Solutions

Expert Solution

ANSWER : d : $ 77669


Related Solutions

Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital wouThis is just one of many projects for the firm, so...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment for the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life,...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment for the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life,...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for...
Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales...
Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for...
Desai Industries is analyzing an average risk project, and the following data have been developed Unit...
Desai Industries is analyzing an average risk project, and the following data have been developed Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also beconstant, but variable costs should rise with inflation. The project should last for 3 years, it will bedepreciated on a straight line basis, and there will be no salvage value. This is just one of many projectsfor the firm, so any losses can be used to offset gains...
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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT