Question

In: Finance

Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would...

Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of ​$5,000,000 and would generate annual free cash inflows of ​$1,100,000 per year for 6 years. Calculate the​ project's NPV ​given:

a. A required rate of return of 9 percent

b. A required rate of return of 11 percent

c. A required rate of return of 13 percent

d. A required rate of return of 18 percent

Solutions

Expert Solution

Use NPV function in EXCEL to find the NPV

=NPV(rate,Year1 to Year6 cashflows)-Year0 cashflow

a. =NPV(9%,Year1 to Year6 cashflows)-5000000=-$65489.6

b. =NPV(11%,Year1 to Year6 cashflows)-5000000=-$346408.4

c. =NPV(13%,Year1 to Year6 cashflows)-5000000=-$602695.2

d.=NPV(18%,Year1 to Year6 cashflows)-5000000=-$1152637.2

Cashflows
Year0 -5000000
Year1 1100000
Year2 1100000
Year3 1100000
Year4 1100000
Year5 1100000
Year6 1100000
9% NPV -65489.6
11% NPV -346408.4
13% NPV -602695.2
18% NPV -1152637.2

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