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Investment Corp. (IC) is considering foreign direct investment in a facility overseas. The investment will require $1,000,000 up front, and the require rate of return is 6%. The facility should produce for five years. The following data concerns the relevant cash flows:
1) |
Revenues are projected to be $450,000 for the first two years, and $200,000 for the last three years. |
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2) |
Fixed costs of operating the facility will be $10,000 per year paid at the beginning of the year. |
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3) |
Variable costs are expected to be 30% of gross revenues. |
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4) |
Maintenance costs are expected to be $1,000 for the first year, $3,000 for years 2, 3, and 4, and |
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$7,000 for year 5. |
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5) |
IC uses straight-line depreciation, and the facility is estimated to have a salvage value of $200,000. |
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6) |
The flat tax rate is 25%. |
Required: Use the Present Value table (or a financial calculator) to calculate the following: |
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18) |
Net Present Value (NPV) |
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19) |
Payback Period |
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20) |
Book Rate of (ROI) |