question archive You are starting a new project
You are starting a new project
Subject:AccountingPrice: Bought3
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%
a. What is the NPV of this project? (In your calculations use zero decimal spaces/round to the whole numbers).
(25 marks)
Explain briefly if you think that the project is viable.
