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Lincoln Inc. is considering a new project which requires an initial investment of $6 million today....

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Finance

Lincoln Inc. is considering a new project which requires aninitial investment of $6 million today. The investment involves thepurchase of a machine with a CCA rate of 30%. Revenues lessexpenses for this project are expected to be $2 million per yearfor 4 years. The project requires an immediate $200,000 increase innet working capital and the working capital will grow at 3% eachyear in the following years. Lincoln Inc. expects to sell themachine at the end of its 4-year operating life for $100,000.

The effective corporate tax rate is 35%. And Lincoln uses a 10%cost of capital to evaluate projects of this nature.Calculate theNPV for this investment.

Should Lincoln implement this project?

Answer & Explanation Solved by verified expert
3.9 Ratings (754 Votes)
All financials below are in Please be guided by the second column called Linkage to understand the mathematics behind each row Figures in parenthesis mean negative values NPV appears at the end of the table Year N Linkage 0 1 2 3 4    See Answer
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Lincoln Inc. is considering a new project which requires aninitial investment of $6 million today. The investment involves thepurchase of a machine with a CCA rate of 30%. Revenues lessexpenses for this project are expected to be $2 million per yearfor 4 years. The project requires an immediate $200,000 increase innet working capital and the working capital will grow at 3% eachyear in the following years. Lincoln Inc. expects to sell themachine at the end of its 4-year operating life for $100,000.The effective corporate tax rate is 35%. And Lincoln uses a 10%cost of capital to evaluate projects of this nature.Calculate theNPV for this investment.Should Lincoln implement this project?

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