Problem:
Info. given on a 5 year project:
Total equipment $1,500,000
Shipping $ 35,000
Installation $ 75,000
Rise in inventory $ 150,000
Rise in A/P from Inv. $ 30,000
Produced per year 500,000 units @$2.00 per unit 1st two yrs/$2.50 last 3 yrs.
Variable Costs 70% of Sales
Improvment Investment $450,000 BEFORE project began
Straight line depreciation
Tax rate 40%
WACC 10%
Will pay project dividends 5%
Int. expense on debt 7%
Equip. salvage end of 5 yrs $100,000
Process methodology $ 75,000 (sold at end of project).
If you do not go thru with project, land could have been leased for $80,000 per yr.
If you go thru with project, you will have a decrease of $45,000 per yr. in revenues from another product line.
Calculate Financial payback, NPV, IRR, MIRR
If annual inflation is 3%, calculate project's inflation adjusted Fin. payback, NPV, IRR and MIRR