a. If the project is undertaken, at t = 0 the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. This net operating working capital will be recovered at the end of the project's life (t = 4).
b. If the project is undertaken, the company will realize an additional $600,000 in sales over each of the next four years (t = 1, 2, 3, and 4). The company's operating costs (not including depreciation) will equal $400,000 a year.
c. The company's tax rate is 40%.
d. At t = 4, the project's economic life is complete, but it will have a salvage value (before-tax) of $50,000.
e. The project's WACC is 10%.
f. The company is very profitable, so any accounting losses on this project can be used to reduce the company's overall tax burden.
1. What is the project's net present value (NPV)? What does it imply?
2. What is the IRR of the project? What does it mean?
3. If the sales figure has a plus or minus 5% movement and the operating cost has about 6% plus or minus changes, what should be the investment decision in best case scenario?
4. If the sales figure has a plus or minus 5% movement, and the operating cost has about 6% plus or minus changes, what should be the investment decision in worst case scenario?
5. If the alternative of the project offers and overseas investment opportunity for four years with 12% return and currently has the exchange rate as 1$USD = .95FOREIGN DOLLAR and dollar depreciates at a rate of 5% every year, should CARLOS company choose the alternative investment? (Hints: Make your judgment based on your result in question 2).