Question

Jones Enterprises is looking at a project with the following forecasted sales: first year sales quantity 30,000 with an annual growth rate of 3.2% over the next ten years. The sales price per unit is $42.50 and will grow at 2.25% per year. The production costs are expected to be 50% of the current year’s sales price. The manufacturing equipment to aid this project will have a total cost of $3,000,000. It will be depreciated using MACRS and has a seven-year MACRS life classification. Fixed cost are $400,000 per year. Jones has a tax rate of 30%. Prepare an Excel worksheet for the 10 year projects Operating Cash Flows. What is the NPV and IRR of this project if the equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital is 8.5% Should the project be accepted or rejected?

Answer 1