Question
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The Flores Co. is analyzing proposed investment in new equipment to produce electrical power strips for...
The Flores Co. is analyzing proposed investment in new equipment to produce electrical power strips for computers. The cost of the new equipment is $2,250,000, which has an expected life of six years. Shipping and installation are expected to total $125,000. Flores will depreciate the equipment using a five-year MACRS life. The equipment will have a salvage value of $300,000 at the end of its useful life. The project will require a $200,000 increase in net working capital initially, which will be recovered at the end of the project.
The company expects to sell 80,000 power strips during the first year of operation (year 1), 125,000 per year in years 2-4, and 75,000 in years 5 and 6. The expected variable cost per unit is $9.00 and the expected annual fixed costs are $250,000. The sale price is estimated at $22.00 per unit. The tax rate is 25% and the cost of capital (discount rate) is 12%.
Calculate the project’s annual free cash flows over the expected life of the equipment.
Calculate NPV of the project
please show calculations in excel
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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