80.2K

Verified Solution

Link Copied!

*Include Excel File in your Answer* You are evaluating a small project for your company. The idea is to introduce a new, but short lived, new product. Sales over the 6 year useful life of the project will be 100,000 units, 120,000 units, 110,000 units, 100,000 units, 70,000 units and 70,000 in each of the 6 years. The price will fluctuate each year, with the pattern being $16, $18, $17, $14, $14 and $14. The cash operating expenses will be, on a per unit basis, $7, $8, $10, $8, $7 and $7. The project will require two pieces of equipment. The Loader will cost $500,000 installed, and the Stamper will cost $1,000,000 installed. Both will be depreciated using straight line depreciation over the 6 year useful life of the project. At the end of the project's useful life, the Loader will be sold for $100,000 and the Stamper will be sold for $200,000. In addition, an investment in NWC will be required initially at a cost of $250,000, and at the end of the project's life this investment will be returned. The tax rate is 40%, and your cost of capital is 13%, what is the IRR for the project? What is the MIRR for the project? Should the project be accepted? Assume that your worst case analysis is that all prices are $1 lower than your base case analysis. Does this change the IRR estimate? Is the project still acceptable? 2

Answer & Explanation Solved by verified expert

See Answer