Exercise 1.You have been asked to estimate the NPV of an investment in a new 5-year venture. The revenueprojections are presented in the following table.0YearProjected sales12450 000 500 000500 0004400 000 250 000The variable costs are expected to be at the level of 50% of the revenues. It is also estimated thatthe overhead expenditures (excl. depreciation) will permanently increase by 50 000 in year 1 andwill remain at that level for the remaining years.The company invests 500 000 euros into capital assets and applies linear depreciation methodand fully depreciates the investments within 5 years. However, it is expected that the marketvalue of these capital assets is still 100 000 euros, and the company has an option to sell theassets at that market price.The project also needs investments into working capital. It is estimated that the working capitalneeded to support the project is at the level of 15% of the annual revenues. The investments intoworking capital are fully recovered after the project ends. The company has already spent 40 000euros for the target market research. Moreover, when capital investment is made, the companywill start to use a small warehouse space, which is already fully depreciated in the accounts.Instead of using the space as part of the project, it can also be sold for 200 000 euros (before anytaxes). If the project is accepted, the possible sale of the warehouse will be postponed for fiveyears. Company cost of capital 10%.The tax rate on income and capital gains is 20%.Your tasks include:a) Find the incremental cash-flows from the project.b) Evaluate the feasibility of an investment using NPV and IRR (please use Excel).

Name: Exercise 1.You have been asked to estimate the NPV of an investment i
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Description: Exercise 1.You have been asked to estimate the NPV of an investment in a new 5-year venture. The revenueprojections are presented in the following table.0YearProjected sales12450 000 500 000500 0004400 000 250 000The variable costs are expected to b

Incremental cash flow refers to the additional cash flow generated or incurred as a result of a…

Answered: Your tasks include: a) Find the…

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Your tasks include: a) Find the incremental cash-flows from the project. b) Evaluate the feasibility of an investment using NPV and IRR (please use Excel).

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 2P

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