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Investment Corp

Finance

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.

2)

Fixed costs of operating the facility will be $10,000 per year paid at the beginning of the year.

3)

Variable costs are expected to be 30% of gross revenues.

     

4)

Maintenance costs are expected to be $1,000 for the first year, $3,000 for years 2, 3, and 4, and

   

$7,000 for year 5.

       

5)

IC uses straight-line depreciation, and the facility is estimated to have a salvage value of $200,000.

6)

The flat tax rate is 25%.

         

 

Required: Use the Present Value table (or a financial calculator) to calculate the following:

       

18)

Net Present Value (NPV)

 

19)

Payback Period

 

20)

Book Rate of (ROI)

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