Problem 6-11 Calculating NPVMedavoy Company is considering a new project that complements its existing business.The machine required for the project costs $4.2 million. The marketing departmentpredicts that sales related to the project will be $2.43 million per year for the next fouryears, after which the market will cease to exist. The machine will be depreciated to zeroover its 4-year economic life using the straight-line method. Cost of goods sold andoperating expenses related to the project are predicted to be 30 percent of sales. Thecompany also needs to add net working capital of $160,000 immediately. The additionalnet working capital will be recovered in full at the end of the project's life. The corporatetax rate is 22 percent and the required return for the project is 11 percent. What is thevalue of the NPV for this project? (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)NPV$O YesO No1,466,989.35Should the company proceed with the project?

Initial cost = $4,200,000COGS and operating expenses = 30% of salesuseful life = 4 yearsTax rate =…

Answered: Problem 6-11 Calculating NPV Medavoy…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 13PROB

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Problem 6-11 Calculating NPV Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $5.0 million. The marketing department predicts that sales related to the project will be $3.07 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $240,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 23 percent and the required return for the project is 11 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,…
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