show work Margarite’s Enterprises is considering a new project. The project will require $250,000 for new...

show work

Margarite’s Enterprises is considering a new project. The project will require $250,000 for new fixed assets and $11,000 for additional investments in net working capital. The project has a 3-year life. The fixed assets will be depreciated using 3-year MACRS to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 4 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of 190 units and the selling price per unit is $1,900. Variable cost per unit is expected to be $800 and annual fixed costs are expected to be $11,000. The tax rate is 34 percent and the required rate of return (cost of capital) is 14 percent.

(A) Calculate the project’s initial investment costs, annual operating cash flows and terminal cash flows. What are project’s NPV and IRR?

(B) Should Margarite accept the project?

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

PLEASE SHOW ALL WORK. THANK YOU Holly is considering a new project. The project will require...

PLEASE SHOW ALL WORK. THANK YOU Holly is considering a new project. The project will require $500,000 for new fixed assets, $208,000 for additional inventory, and $36,000 for additional accounts receivable. Short-term debt is expected to increase by $165,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their...

Margarite’s Enterprises is considering a new project. The project will require $200,000 for new fixed assets...

Margarite’s Enterprises is considering a new project. The project will require $200,000 for new fixed assets and $15,000 for additional investments in net working capital. The project has a 3-year life. The fixed assets will be depreciated using 3-year MACRS to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 5 percent of their original cost. The net working capital returns to its original level at...

Tech Enterprises is considering a new project that will require $325,000 for fixed assets, $160,000 for...

Tech Enterprises is considering a new project that will require $325,000 for fixed assets, $160,000 for inventory, and $35,000 for accounts receivable. Short-term debt is expected to increase by $100,000. The project has a life of 5 years. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. Ignore bonus depreciation. At the end of the project, the fixed assets can be sold for 25 percent of their original cost and the...

Tech Enterprises is considering a new project that will require $325,000 for fixed assets, $160,000 for...

Suppose Lost Pigeon Aviation is considering a project that will require $250,000 in assets. • The...

Suppose Lost Pigeon Aviation is considering a project that will require $250,000 in assets. • The project is expected to produce earnings before interest and taxes (EBIT) of $60,000. • Common equity outstanding will be 25,000 shares. • The company incurs a tax rate of 30%. If the project is financed using 100% equity capital, then Lost Pigeon’s return on equity (ROE) on the project will be (16.80%, 14.27%, 19.32%, or 17.64%) In addition, Lost Pigeon’s earnings per share (EPS)...

A company is considering a new project. This project will require the purchase of $321,000 of...

A company is considering a new project. This project will require the purchase of $321,000 of equipment, the purchase of $45,000 in inventory and will increase accounts payable by $73,000. Expected sales are $625,000 with costs of $480,000. The project will last for five years, be taxed at 35% and have a required rate of return of 14%. The equipment will have no salvage value at the end of the project and will be depreciated using the MACRS three-year class....

Ivy is considering a new project. The project will require $2,000,000 for new fixed assets. There...

Ivy is considering a new project. The project will require $2,000,000 for new fixed assets. There is a total of 75,000combjned increase in inventories and account receivables which is partly financed by 25,000 increase is accounts payables. The project has a 6 yr life span. The fixed assets will be depreciated using 7 year MACRS to zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 10% of...

Hollister & Hollister is considering a new project. The project will require $622,000 for new fixed...

Hollister & Hollister is considering a new project. The project will require $622,000 for new fixed assets, $238,000 for additional inventory, and $42,000 for additional accounts receivable. Accounts payable are expected to increase by $175,000. The project has a 6-year life. The fixed assets are in the 5-year MACRS class. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original level at the...

Judson Industries is considering a new project. The project will initially require $749,000 for new fixed...

Judson Industries is considering a new project. The project will initially require $749,000 for new fixed assets, $238,000 for additional inventory, and $25,000 for additional accounts receivable. Accounts payable is expected to increase by $70,001. The fixed assets will belong in a 30% CCA class. At the end of the project, in four years' time, the fixed assets can be sold for 40% of their original cost. The net working capital will return to its original level at the end...

Dysound Inc. is considering a new project. The project will require $325,000 for new fixed assets,...

Dysound Inc. is considering a new project. The project will require $325,000 for new fixed assets, $95,000 for additional inventory and accounts receivable (working capital). The project has a 5-year life. The fixed assets belong to a 30% CCA class. At the end of the project there is no salvage cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $554,000 and costs of $430,000....

Subjects