15. Desai Industries is analyzing an average risk project, and the following data have been developed.
Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be
constant, but variable costs should rise with inflation. The project should last for 3 years, it will be
depreciated on a straight line basis, and there will be no salvage value. This is just one of many projects
for the firm, so any losses can be used to offset gains on other firm projects. What is the project's NPV?
Net investment cost (depreciable basis) $200,000.00
Units sold 50,000
Average price per unit, Year 1 $25.00
Fixed operating costs excluding depreciation (constant) $150,000.00
Variable operating costs/unit, Year 1 $20.20
Expected inflation rate per year 5.00%
Marginal tax rate 39.00%
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