AR company is considering a new three-year project to build on the land they bought at 1 million dollars 3 year ago. The
Posted: Tue Jan 18, 2022 12:57 pm
AR company is considering a new three-year project to build on
the land they bought at 1 million dollars 3 year ago. The land is
worth of 1.5 million dollars today. The company hires an analyst
for research and this preliminary research takes $5,000. The
project requires an initial fixed asset investment of $360,000
which will be depreciated straight- line to zero over its
three-year tax life with no salvage value. The project is estimated
to generate $1,500,000 in annual sales, with costs of $350,000.
Assume that the tax rate is 35% and the WACC is 12%. (d) Appraise
the use of WACC as the required rate of return to evaluate the
project. (10 marks)
the land they bought at 1 million dollars 3 year ago. The land is
worth of 1.5 million dollars today. The company hires an analyst
for research and this preliminary research takes $5,000. The
project requires an initial fixed asset investment of $360,000
which will be depreciated straight- line to zero over its
three-year tax life with no salvage value. The project is estimated
to generate $1,500,000 in annual sales, with costs of $350,000.
Assume that the tax rate is 35% and the WACC is 12%. (d) Appraise
the use of WACC as the required rate of return to evaluate the
project. (10 marks)