Description of this paper

Investments and annual cashflows

Description

solution


Question

Capital Budgeting;You are the CEO of a building company.;A study that cost $3,000 (paid last month) estimated the following if the project proceeds.;? The fully depreciated storage shed that is currently on the build site will be sold for $5000.;? The new building will cost $80,000 to build. According to tax regulations, you should fully depreciate this villa over 20 years.;? Revenue will increase by 15,000 per year if the project is undertaken.;? The operating expenses will increase by $4,000 per year.;Assuming the cost of capital is 7% per annum and the relevant corporate tax rate is 40%;a) Calculate the net initial investment.;b) Calculate the annual net cash flows.;c) Calculate the NPV of the new villa project.;d) Calculate the payback period of the new villa project.;e) Do you recommend the new project? Briefly explain your reasoning.

 

Paper#18258 | Written in 18-Jul-2015

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