Axillar - Year Net cash flows Discounting factor Present...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1. ( ignore income taxes)  Axillar Beauty products corp is considering the production of a new  conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost  $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000  at the end of 10 years.  The machinery will also need a $35,000 overhaul at the end of year 6. A 40,000  increase in working capital will be needed for this investment project. The working capital will be  released at the end of the 10 years. Axillar’s discount rate is 16%. Required: a- what is the  net present value of this inventment opportunity?
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Year Net cash flows Discounting factor Present value-$415,000 1-$415,000.00 1 $85,000 0.862 $73,275.86 2 $85,000 0.743 $63,168.85 3 $85,000 0.641 $54,455.90 4 $85,000 0.552 $46,944.74 5 $85,000 0.476 $40,469.61 6 $50,000 0.410 $20,522.11 7 $85,000 0.354 $30,075.51 8 $85,000 0.305 $25,927.16 9 $85,000 0.263 $22,351.00 10 $175,000 0.227 $39,669.63 NPV $1,860.38 b-Based on the answer above, should Axillar go ahead with the new conditioning shampoo? As NPV is positive, Axillar can go ahead with the new conditioning shampoo which will require the purchase of new mixing machinery....
View Full Document

Ask a homework question - tutors are online