The company is going to analyse a new investment project which has the following characteristics:
Unit price $5.00
Annual Unit Sales 50,000
Variable cost per unit $3.00
Investment into new machinery (t=0) $40000
Investment in working capital $50000 (fully recovered at the end of project)
Project life 6 years
Annual Depreciation $60000
Market value of machinery (t=6)
Tax rate 25% (the same for profits and capital gains)
Required rare of return 10%
QUESTIONS: (Show all calculation stages)
A) Find the project cash flows
B) Evaluate the project NPV
C) Should the company invest in such project? Explain.