Thurston Petroleum is considering a new project that complements its existing business. The machine required for...

Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.75 million. The marketing department predicts that sales related to the project will be $2.63 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $215,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 23 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? Should the company proceed with this project?

Solutions

Expert Solution

Solution :

The value of the NPV for this project is = $ 862,088.28

= $ 862,088 ( when rounded off to the nearest dollar )

Since the NPV of the project is positive the company should proceed with this project.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution :

jeff jeffy answered 1 year ago

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