DEI’s tax rate is 21 percent. The project requires $830,000 in
initial net working capital investment to get operational.
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a. |
Calculate the project’s Time 0 cash flow, taking into account
all side effects. Assume that any NWC raised does not require
floatation costs. (A negative answer should be indicated by
a minus sign. Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, e.g.,
1,234,567.) |
b. |
The new RDS project is somewhat riskier than a typical project
for DEI, primarily because the plant is being located overseas.
Management has told you to use an adjustment factor of +1 percent
to account for this increased riskiness. Calculate the appropriate
discount rate to use when evaluating DEI’s project. (Do not
round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.) |
c. |
The manufacturing plant has an eight-year tax life, and DEI
uses straight-line depreciation. At the end of the project (i.e.,
the end of Year 5), the plant can be scrapped for $1.51 million.
What is the aftertax salvage value of this manufacturing plant?
(Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, e.g.,
1,234,567.) |
d. |
The company will incur $2,310,000 in annual fixed costs. The
plan is to manufacture 13,100 RDSs per year and sell them at
$10,500 per machine; the variable production costs are $9,700 per
RDS. What is the annual operating cash flow, OCF, from this
project? (Do not round intermediate calculations and enter
your answer in dollars, not millions of dollars, e.g.,
1,234,567.) |
e. |
Calculate the project's net present value. (Do not
round intermediate calculations and enter your answer in dollars,
not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89) |
f. |
Calculate the project's internal rate of return. (Do
not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.) |