The writer is very fast, professional and responded to the review request fast also. Thank you.
The project has a useful life of 10 years.
Land costs $5m and is estimated to have a resale value of $7m at the completion of the project.
Buildings cost $4m, with allowable depreciation of 5% pa straight-line and a salvage value of $0.8m.
Equipment costs $3m, with allowable depreciation of 20% pa straight-line and a salvage value of $0.4m. An investment allowance of 20% of the equipment cost is available.
Revenues are expected to be $5m in year one and rise at 10% pa.
Cash expenses are estimated at $2m in year one and rise at 5% pa.
The new product will be charged $300,000 of allocated head office administration costs each year even though head office will not actually incur any extra costs to manage the project.
An amount of $200,000 has been spent on a feasibility study for the new project.
The project is to be partially financed with a loan of $6m to be repaid annually with equal instalments at a rate of 5% pa over 10 years.
Except for initial outlays, assume cash flows occur at the end of each year.
The tax rate is 30% and is payable in the year in which profit is earned.
The after tax required return for the project is 10% pa.
Find:
(a) Calculate the NPV. Is the project acceptable? Why or why not?
(b) Conduct a sensitivity analysis showing how sensitive the project is to revenues, cash expenses and to the cost of capital. Explain your results.
Show more
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more