Question
In: Finance
Company XYZ decides to invest in a $25,000,000 project. The company will finance the project with...
Company XYZ decides to invest in a $25,000,000 project. The company will finance the project with 50% debt and 50% equity. The term of the loan is interest only, compounded annually, 5%, and over 5 years. The project will allow the company to produce and sell an additional 100,000 widgets at $130 a widget. The cost of producing each widget is 50% of revenue. Furthermore, the project will fully depreciate in 5 years on a straight-line basis and the project will end. The tax rate is 21%
a. What is the IRR?
b. If the company’s required rate on this project is 10%, what is the NPV?
c. Would you accept it? Yes or No? State why
(The correct answers are 17.04 for the IRR and $1,312,798 for the NPV. Please show work on how to get those answers.
Solutions
Expert Solution
IRR has been calculated through financial calculator.
(C) No Compay should not accept the project because IRR< cost
of capital and the NPV of the project is negative. These two
parameters indicate no wealth addition to the company because of
this project.
jeff jeffy answered 1 year agoRelated Solutions
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