Finance Assignment - Accept or Reject the Project
SuperClassMid-Term Assignment: Accept or Reject the Project?
In this assignment, you will undertake calculations in order to evaluate a project, and decide if it should be accepted or rejected.
Texas Roks, Inc. is considering a new quarry machine. The costs and revenues associated with the machine have been provided to you for analysis:
| $4,000,000
|
Installation costs
| $100,000
|
Estimated unit sales in year 1
| $50,000
|
Estimated unit sales in year 2
| $75,000
|
Estimated unit sales in year 3
| $40,000
|
Estimated sales price in year 1
| $150
|
Estimated sales price in year 2
| $175
|
Estimated sales price in year 3
| $160
|
Variable cost per unit
| $120
|
Annual fixed cost
| $50,000
|
Additional working capital needed
| $435,000
|
Depreciation method
| 3 years straight-line method, no salvage value
|
Texas Rok's tax rate
| 40%
|
Texas Rok's cost of capital
| 13%
|
Required:
- Calculate operating cash flow and the change in net working capital.
- Determine the NPV and IRR of the project.
- Should the company accept or reject the project based on the NPV? Why?
- Should the company accept or reject the project based on the IRR? Why?
- What is your final accept or reject decision? Why?
- What is the payback period for this project? Would this influence your decision to accept or reject?
Deliverables:
- Submit your findings to the above questions in a Microsoft Word or Excel document to the calculations.
Correctly calculated the payback period. |
11 years ago
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solutions_1448337680.xlsx
