Question

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

Over lunch, you and Mary meet to discuss next steps with the expansion project.

“Do we have everything we need on sales and costs?” you ask. ”It must be time to compute the net present value (NPV) and internal rate of return (IRR) of the Apex expansion project.”

“We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,” says Mary. “It is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm, which indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.”

“That sounds good,” you say.

“Right," says Mary. "You can use the WACC of 1% listed in the excel file posted for the computation of the NPV and comparison for IRR."

“I’ve got the information I need from Luke and James,” you say. "Does this look right to you? Here’s what they gave me,” you say, as you hand a sheet of paper to Mary.

“Let’s look at this now while we’re together,” she says.

The information you hand to Mary shows the following:

•Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
•Project and equipment life: 5 years
•Sales: $25 million per year for five years
•Assume gross margin of 60% (exclusive of depreciation)
•Depreciation: Straight-line for tax purposes
•Selling, general, and administrative expenses: 10% of sales
•Tax rate: 35%
You continue your conversation.

“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”

“No problem,” you say.

“Then, compute NPV and IRR of the project using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR financial function for the computation of IRR.”

Include 200 words report.

Solution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

Depreciation is a non-cash expense, but it is considered to account for the tax benefits associated with the initial investment over the project’s duration. The cash outflow occurs at the start and is equal to $30 million. Over the project’s life of 5 years...

This is only a preview of the solution. Please use the purchase button to see the entire solution

$38.00

or $1 if you
register a new account!

Related Homework Solutions

Bonds
Homework Solution
$25.00
Business
Finance
Bonds
Relationship
Investor
Condition
Market
Price
Maturity
Rate
Business Questions: Buy Or Lease
Homework Solution
$38.00
Business
Accounting
Administration
Finance
Economics
Management
Financial Transactions
Buying
Leasing
Equipment
Purchase Price
Security Deposit
Assets
Cash Flow
Tax Rate
Cost Of Debt
Business and Finance: Hospital Management
Homework Solution
$90.00
Accounting
Business
Finance
Economy
Hospital Management
Tax
Research
Costs
Equipment
Salaries
Pediatric Unit
Benefits
Expenses
Revenue
Payback Period
Cash Flow
NPV
IRR
Business Questions
Homework Solution
$65.00
Business
Finance
Economy
Market Value
Hilton
Equity
Trading Value
Repurchase
Prices
Risk
ITT
EVNT
Potential Bidders
Market Analysis
Stand-Alone Value
Get help from a qualified tutor
Live Chats