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What is the NPV of this project? (in 000s) Bogle is considering a two-year project to...

What is the NPV of this project? (in 000s)

Bogle is considering a two-year project to manufacture microchips. Bogle purchases equipment for $750K. This two-year project will require additional inventory of $125K and accounts payable of $150K, which reverse at the end of the project. Bogle’s tax rate is 50%, and its cost of capital is 12%.

Bogle estimates incremental revenue of $600K in years 1 and 2, and operating expenses equal to 15% of revenues. The machine is depreciated straight-line (i.e., 50% in year 1 and 50% in year 2).

What is the NPV of this project? (in 000s)

Solutions

Expert Solution

Solution :-

Depreciation every year = $750,000 / 2 = $375,000

Working Capital Required = $125,000 - $150,000 = - $25,000

Therefore NPV of the Project ( in 000's ) = $2.918 K

If there is any doubt please ask in comments

Thank you please rate

jeff jeffy answered 1 year ago
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