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(solution) Initial investment outlay of $30 million


Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal yearProject and equipment life: 5 yearsSales: $25 million per year for five yearsAssume gross margin of 60% (exclusive of depreciation)Depreciation: Straight-line for tax purposesSelling, general, and administrative expenses: 10% of salesTax rate: 35%You continue your conversation.“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”“No problem,” you say.“Then, compute NPV and IRR of the project using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR financial function for the computation of IRR.”“Okay,” you say. "I’ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend.”

 


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Sep 13, 2020

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