Mudu rem plans to produce nign-quality chiCken feed. Existing storage thất is leased nearby company is planning to be used in the new project. The storage's rental price for the following year is $130,000, and the rent is predicted to increase at a rate of 4% percent every year afterward. In addition to utilizing the storage, the new project requires $1.38 million investment in plant and equipment. For tax purposes, this may be depreciated straight-line over a ten-year period. Mudurnu Yem, on the other hand, plans to finish the project after eight years and resell the plant and equipment for $460,000 in year eight. Lastly, the project necessitates an immediate investment of $380,000 in working capital. Following that, in each of years 1 through 7, working capital is expected to equal 10% percent of revenues. Sales of high-quality chicken feed are predicted to be $4.80 million in the first year, and sales are expected to grow at a pace of 5% percent each year after that, somewhat faster than inflation.Manufacturing costs are anticipated to be 90% percent of sales, and profits taxed at 21% percent. Calculate the NPV of Mudurnu Yem's project assuming that the cost of capital is 12%. (Enter your answer in thousands, not in millions, rounded to the nearest dollar.) NPV thousand
Mudu rem plans to produce nign-quality chiCken feed. Existing storage thất is leased nearby company is planning to be used in the new project. The storage's rental price for the following year is $130,000, and the rent is predicted to increase at a rate of 4% percent every year afterward. In addition to utilizing the storage, the new project requires $1.38 million investment in plant and equipment. For tax purposes, this may be depreciated straight-line over a ten-year period. Mudurnu Yem, on the other hand, plans to finish the project after eight years and resell the plant and equipment for $460,000 in year eight. Lastly, the project necessitates an immediate investment of $380,000 in working capital. Following that, in each of years 1 through 7, working capital is expected to equal 10% percent of revenues. Sales of high-quality chicken feed are predicted to be $4.80 million in the first year, and sales are expected to grow at a pace of 5% percent each year after that, somewhat faster than inflation.Manufacturing costs are anticipated to be 90% percent of sales, and profits taxed at 21% percent. Calculate the NPV of Mudurnu Yem's project assuming that the cost of capital is 12%. (Enter your answer in thousands, not in millions, rounded to the nearest dollar.) NPV thousand
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Mudurnu Yem plans to produce high-quality chicken feed. Existing storage that is currently leased to a nearby company is planning to
be used in the new project. The storage's rental price for the following year is $130,000, and the rent is predicted to increase at a rate
of 4% percent every year afterward. In addition to utilizing the storage, the new project requires $1.38 million investment in plant and
equipment. For tax purposes, this may be depreciated straight-line over a ten-year period. Mudurnu Yem, on the other hand, plans to
finish the project after eight years and resell the plant and equipment for $460,000 in year eight. Lastly, the project necessitates an
immediate investment of $380,000 in working capital. Following that, in each of years 1 through 7, working capital is expected to equal
10% percent of revenues. Sales of high-quality chicken feed are predicted to be $4.80 million in the first year, and sales are expected
to grow at a pace of 5% percent each year after that, somewhat faster than inflation.Manufacturing costs are anticipated to be
90% percent of sales, and profits taxed at 21% percent.
Calculate the NPV of Mudurnu Yem's project assuming that the cost of capital is 12%. (Enter your answer in thousands, not in millions,
rounded to the nearest dollar.)
NPV
thousand
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