Question

Question 4

Trevor Car was so impressed with your work on the bonds question that you were promoted after only 1 month with the company. You are now Director of Finance and are tasked with evaluating business proposals for clients. Your base salary is $194,000 per year.

The following information was made available to you in order to evaluate a project for the company’s new client.

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Forecasted Unit Sold

35,000

85,000

95,000

156,000

225,000

199,000

Fixed Costs

410,000

400,000

400,000

400,000

400,000

400,000

This project will run for six years and will require an initial investment of $16,000,000 for new equipment. At the end of the six years, this equipment can be sold for $600,000. The initial working capital required will be Inventory of 2,000,000, Accounts Receivable of $1,000,000 and Accounts Payable of $1,000,000.

You have contacted CRA and determined that the asset class for this equipment is Class 6 (see table below for CCA rates). You also confirm that the company’s tax rate is 35%.

The company forecasts that they can sell their new products at a price of $225, and that the variable cost of each unit sold is $125.

The required rate of return for this project is 32%

You have been asked to calculate the NPV and IRR of this project. As you have graduated with a BBA from Yorkville, this should not be very difficult for you. Trevor Car has promised you another promotion if you are able to solve this. Show ALL YOUR WORK.

You recently got a call from Bill Sing and he tells you that he cannot find a job. Bill regrets how he acted during his time at Yorkville University. He now understands that cheating and plagiarizing on his exams was not appropriate and hurt him in the long run. Using websites like Course Hero and Chegg are not an ethical way for students to conduct themselves. Bill has decided to go back to Yorkville University and has pledged to never cheat on an exam again.

Answer 1

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