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a company is considering a new project requiring an upfront fixed-asset investment of $1,000,000 with an...

a company is considering a new project requiring an upfront fixed-asset investment of $1,000,000 with an economic life of five years. depreciation isnfaken on a straight-line basis, with no expected salvage value. net working capital required immediately is expected fo be $100,000 and will be recovered in full upon fhe projects completion in five years. in the expected-scenario forecast, the annual sales volume is 58,200 units, while the sale price is $157 per unit with a variable cost of $107 per unit. annual fixed costs are estimated to $1,360,000. if the appropriate discount rate is 14.00% and the tax rate is 30%, what is the project's NPV?

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Expert Solution

Total cost=working capital requirement+fixed asset investment=$100000+$1000000=$1100000

Again $100,000 working capital has to be added to Year5 cashflows due to its recovery in nature

All the formulas and how find the cashflows and NPV is given the below table

NPV can be calculated using NPV function in EXCEL

=NPV(rate, Year1 to Year5 cashflows)-Year0 cashflow

=NPV(14.0%,Year1 to Year5 cashflows)-$1100000

NPV=$2,882,815

jeff jeffy answered 1 year ago
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