Investment in equipment of $96,600 and then requires an initial investment in working capital of $14,400 (at t= 0). You expect the project to produce sales revenue of $131,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t= 1, t=2, and t= 3]). The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $12,420 and recover the investment in net working capital. The corporate tax rate is 21 percent and the cost of capital is 15 percent. Calculate the NPV of the project.

Investment in equipment of $96,600 and then requires an initial investment in working capital of $14,400 (at t= 0). You expect the project to produce sales revenue of $131,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t= 1, t=2, and t= 3]). The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $12,420 and recover the investment in net working capital. The corporate tax rate is 21 percent and the cost of capital is 15 percent. Calculate the NPV of the project.

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Description: A project requires an initial investment in equipment of $96,600 and then requires aninitial investment in working capital of $14,400 (at t= 0). You expect the project toproduce sales revenue of $131,000 per year for three years. You estimatemanufac

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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