Question
In: Finance
Atlantis Manufacturing Corp. is considering a new line of office furniture. New equipment required to manufacture...
Atlantis Manufacturing Corp. is considering a new line of office furniture. New equipment required to manufacture the product cost $750.000 to purchase and an additional $50,000 in shipping and installation expenses. The equipment will be housed in space currently unused by the company and will be depreciated on a MACRS four-year schedule over the project's four-year economic life, with rates of 33 percent 45 percent 15 percent and 7 percent for Years 1 through 4. The equipment's expected salvage value is negligible. Revenues are expected to be $380,000 per year and operating expenses excluding depreciation are expected to total $60.000 per year. Atlantis Manufacturings marginal tax rate is 25 percent and its cost of capital is 13 percent. No additional investments in working capital are required. Calculate the project's net present value (NPV) and internal rate of return (IRR).Should Atlantis produce this product?
Solutions
Expert Solution
NPV of the Project is $72,141.37
IRR of the Project is 17.44%
Atlantis should produce the product since NPV > 0 and IRR (17.44%) > Cost of Capital (13%)
jeff jeffy answered 1 year agoRelated Solutions
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