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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
RSM Co is considering a project which will require the purchase of $2.7 million in new equipment. The equipment will be depreciated straight-line to a book value of $1 million over the 5-year life of the project. Annual sales from this project are estimated at $2,950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $200,000. Sway's Back Store will sell the equipment at the end of the project for 30% of its original cost. New net working capital equal to 15% of sales will be required to support the project. All of the new net working capital will be recouped at the end of the project. The firm’s WACC is 12% per year. The tax rate is 40%. In the worst case, annual sales decreases to $1.2 million, and WACC increases to 15%. What is the project’s NPV under the worst case?
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