Anopportunity has presented itself to you and one of your classmates. Your opportunity is to enter...

60.1K

Verified Solution

Question

Finance

Anopportunity has presented itself to you and one of yourclassmates. Your opportunity is to enter the fast-growing craftbeer industry. Your projected sales in the first year is 8300 kegs.Your projected growth rate is 5 percent. Entering the business willrequire $35,000 of net working capital. Total fixed costs are$95,000. Variable production costs are $36 per keg and keg salesare priced at $57 each. The equipment to begin production is$175,000. The equipment will be depreciated using straight linedepreciation over a five year life and has no salvage value. Thetax rate is 35 percent and the required return is 26 percent. Whatis the NPV of the project and should you pursue the project?
-$6,728.10 No, do not take the project.
$12,273.57 Yes, take the project.
-$39,007.72 No, do not take the project.
-$2,082.17 No, do not take the project.

Answer & Explanation Solved by verified expert

4.3 Ratings (654 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Anopportunity has presented itself to you and one of yourclassmates. Your opportunity is to enter the fast-growing craftbeer industry. Your projected sales in the first year is 8300 kegs.Your projected growth rate is 5 percent. Entering the business willrequire $35,000 of net working capital. Total fixed costs are$95,000. Variable production costs are $36 per keg and keg salesare priced at $57 each. The equipment to begin production is$175,000. The equipment will be depreciated using straight linedepreciation over a five year life and has no salvage value. Thetax rate is 35 percent and the required return is 26 percent. Whatis the NPV of the project and should you pursue the project?-$6,728.10 No, do not take the project.$12,273.57 Yes, take the project.-$39,007.72 No, do not take the project.-$2,082.17 No, do not take the project.