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In: Finance

The company "XYZ" is considering to make a new investment that costs 120,000 euros, has beneficial/useful...

The company "XYZ" is considering to make a new investment that costs 120,000 euros, has beneficial/useful life span 5 years and residual (salvage) value 20,000 euros. After the new investment, for the next five years annual sales will rise by 100,000 euros and annual costs will also rise by 30,000 euros. Moreover, the net working capital (NWC) will increase by 30,000 euros.

In addition, the corporate tax rate is 50%. the capital cost factor is 10% and the company applies the straight-line method in calculating depreciation.

Evaluate the investment by using:

a) net present value (NPV) method

b) internal rate of return (IRR) method

Discuss your results.

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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