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20 May 2020
Global Line Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $800,000. The fixed asset will be depreciated straight-line to zero over its 4-year life, after which time it will have a market value of $100,000 (before taxes).The project requires an initial investment in net working capital of $45,000. The project is estimated to generate $724,000 in annual sales, with costs of $480,000. The tax rate is40percent and the required return on the project is 14percent. What is the NPV of this project? Should we accept this project?
Global Line Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $800,000. The fixed asset will be depreciated straight-line to zero over its 4-year life, after which time it will have a market value of $100,000 (before taxes).The project requires an initial investment in net working capital of $45,000. The project is estimated to generate $724,000 in annual sales, with costs of $480,000. The tax rate is40percent and the required return on the project is 14percent. What is the NPV of this project? Should we accept this project?