Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. desai industries is analyzing an average-risk proj

Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit...

90.2K

Verified Solution

Question

Accounting

  1. Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV?
    WACC

    10.0%
    Net investment cost (depreciable basis)

    $200,000
    Units sold

    39,000
    Average price per unit, Year 1

    $25.00
    Fixed op. cost excl. depr. (constant)

    $150,000
    Variable op. cost/unit, Year 1

    $20.20
    Annual depreciation rate

    33.333%
    Expected inflation rate per year

    5.00%
    Tax rate

    40.0%

    -$54,505

    -$52,558

    -$61,642

    -$64,886

    -$74,619

Answer & Explanation Solved by verified expert
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

Other questions asked by students