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In: Finance

A firm is planning to purchase a new equipment and answer the following questions according to...

A firm is planning to purchase a new equipment and answer the following questions according to what you have learned.

Data are shown below:

The new equipment will cost $7,500. And it would be depreciated on a straight-line basis over the project's 5-year life (depreciation rate is 20% per year) and would require additional $200 net operating working capital that would be recovered at the end of the project's life. There is no salvage value.

After purchasing this equipment, firm could sell 1000 products per year at $6 per one. And operating costs is 50% of sale revenue. Tax rate is 40% and Weighted average cost of capital is 15%.

Questions: (Please list the necessary steps not only a final number)

Please show the process of CF estimation and based on the CF information you get to answer following questions.

What is the project's NPV? Should the firm purchase this equipment based on NPV?

What is the project's IRR? Should the firm purchase this equipment based on IRR?

What is the project's MIRR?

What is the project's Payback?

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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