Mathematics, 16.04.2021 22:30 maddietomlinson113
Cardinal Co is evaluating a new product opportunity. To launch the product requires the purchase of a new machine for $50,000. This machine will be used for 4 years, after which the machine will be sold for a salvage value of $10,000. Launch of the new product will also require a $1,200 increase in working capital – an increase which will be recovered at the end of 4 years. Over this 4-year product life, Cardinal Co estimates incremental annual sales of $36,000 and increased annual cash-costs of $8,500. Based on Cardinal Co’s discount rate of 12.5% and a marginal tax rate of 21% please answer the following:
a) What is the total initial investment for this project?
b) What is the project’s incremental after-tax cash flow in year 1?
c) What is the project’s incremental after-tax cash flow in year 4?
d) If the calculated IRR for this project is 34.7%, should Cardinal accept this project? Why – please explain your answer.
Answers: 2
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Cardinal Co is evaluating a new product opportunity. To launch the product requires the purchase of...
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