11-1 • The Genuine Co. is considering a 3-year expansion project
that requires an initial investment of $2.9 million in fixed
assets. • These fixed assets will be depreciated straight-line to
zero over a 3-year useful life; after which they will be worthless.
• The project will generate $2.19 million in annual sales and cost
$815,000. • The annual interest expense incurred by the company for
the debt borrowed is $650,000. • The applicable corporate tax rate
is 35%. a. Assuming the required rate of return of 12%, calculate
the project’s NPV.
- Suppose that in addition to all the requirements set
out in part (a), the project also requires an initial investment in
NWC of $300,000, which is expected to be fully recovered at the end
of the project’s life.
In addition, now, the fixed
assets will have a salvage value of $210,000 and a market value of
zero at the end of the project.
Assuming the new required rate
of return of 10%, calculate the project’s new NPV.