Question

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 is taken on a straight-line basis, with no expected salvage value. Net working capital required immediately is expected to be $100,000 and will be recovered in full upon the project's completion in five years. In the expected-scenario forecast, the annual sales volume is 43,200 units, while the sale price is $117 per unit with a variable cost of $67 per unit. Annual fixed costs are estimated to $1,010,000. If the appropriate discount rate is 11.50% and the tax rate 30%, what is the project's NPV?

18. A company is planning on increasing its annual dividend by 7.25% a year for the next three years and then settling down to a constant growth rate of 2.25% per year in perpetuity. The company just paid its annual dividend in the amount of $0.75 per share. What is the current stock price if the required rate of return is 17.25%?

Answer 1