Homework answers / question archive / The following information was made available to you in order to evaluate a project for the company's new client

The following information was made available to you in order to evaluate a project for the company's new client

Accounting

Share With

---

The following information was made available to you in order to evaluate a project for the company's new client. Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Forecasted Unit Sold

35,000

85,000

95,000

156,000

225,000

199,000

Fixed Costs

410,000

400,000

400,000

400,000

400,000

400,000

This project will run for six years and will require an initial investment of $16,000,000 for new equipment. At the end of the six years, this equipment can be sold for $600,000. The initial working capital required will be Inventory of 2,000,000, Accounts Receivable of $1,000,000 and Accounts Payable of $1,000,000.

You have contacted CRA and determined that the asset class for this equipment is Class 6 (see table below for CCA rates). You also confirm that the company's tax rate is 35%.

 

 

 

The company forecasts that they can sell their new products at a price of $225, and that the variable cost of each unit sold is $125.

The required rate of return for this project is 32%

You have been asked to calculate the NPV and IRR of this project.