You are starting a new project. This project would last 4 years. The following is the input information that you have collected:Building cost (1.3% in the first year and then 2.6% every year)$12,000,000Equipment cost (MACRS 5 years)$8,000,000Net operating working capital requirement (% of Sales)10%First year sales (in units)20,000Growth rate in units sold0%Sales price per unit$3,000Variable cost per unit$2,100Fixed costs$8,000,000Market value of building at the end of year 47,500,000Market value of equipment at the end of year 42,000,000Tax rate40%WACC12%Inflation growth in sales price per year2%Inflation growth in VC per unit per year2%Inflation growth in fixed costs per year1%What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You are starting a new project. This project would last 4 years. The following is the input information that you have collected:

Building cost (1.3% in the first year and then 2.6% every year)	$12,000,000
Equipment cost (MACRS 5 years)	$8,000,000
Net operating working capital requirement (% of Sales)	10%
First year sales (in units)	20,000
Growth rate in units sold	0%
Sales price per unit	$3,000
Variable cost per unit	$2,100
Fixed costs	$8,000,000
Market value of building at the end of year 4	7,500,000
Market value of equipment at the end of year 4	2,000,000
Tax rate	40%
WACC	12%
Inflation growth in sales price per year	2%
Inflation growth in VC per unit per year	2%
Inflation growth in fixed costs per year	1%

What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).

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