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Category > Business & Finance Posted 03 Aug 2017 My Price 8.00

North Bay Village Safety Products has an opportunity to manufacture replacement air bags for Takata

North Bay Village Safety Products has an opportunity to manufacture replacement air bags for Takata Corp on a long-term contract for warranty work. The following financial information is available for this project:

YR Sales Retooling expense
1 300,000  
2 650,000  
3 2,000,000 100,000
4 2,100,000 50,000
5 2,300,000 50,000
6 2,200,000 50,000
7 2,150,000 50,000
8 2,025,000 10,000
9 2,000,000 10,000
10 400,000  
  16,125,000  

Additional information

        

Equipment will cost $2,575,000 and will have a salvage value of $75,000.

  

The project will require $100,000 in working capital.

    

The company depreciates equipment using the straight-line method.

  

Cost of goods sold will be 25% of sales.

      

Annual general & admin expense will be $740,000 and includes depreciation expense.

The cost of capital is 16%.

        

REQUIRED:

4.1. What is the Net Present Value of this project?

4.2. Should North Bay accept this project and make the investment? Why or why not?

4.3. What is the Internal Rate of Return of this project?

4.4. North Bay is considering ending the project after nine years. What is the

         Net Present Value of the project with a nine year duration instead of ten years?

4.5. What is the difference in cash flow in years 1 through 8 if the project is cut back to

         nine years? Why is it that way?

Answers

Alpha Geek
(8)
Status NEW Posted 03 Aug 2017 02:08 PM My Price 8.00

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