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Hi-Value Widgets can sell 50,000 units per year of a new widget at the price of...

Hi-Value Widgets can sell 50,000 units per year of a new widget at the price of $4 per unit. Variable cost is $2.5/unit. Fixed costs (including rent, administrative costs etc.) are $12,000 per year. The firm will need to invest $90,000 in equipment which is fully depreciated over the three-year life of the project. In addition, the project requires an initial $20,000 investment in net working capital. The tax rate is 34% p.a. and required return on equity is 20% p.a. should this project be accepted?

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File Home InsertPage LayoutFormulas DataReview View DeveloperNitro Pro8 5 EX Times New Roman, 12,A·A· в 1 u .田,上,스· -=9- wrap Text General Copy ! 掴Merge & Center, 雫, % 渦鼎Conditional-Format- Cell-Insert Delete Format , Sort & Find & Format Painter 2 Clear Filter Select Editing Formatting as Table, Styles Clipboard Font Alignment Number Cells D. Net Present Value A. INITIAL INVESTMENT (Year 0) Particulars Investment in Equipment Investment in Working Capital 20000 Amou P10647.69 ecision: Since NPV is positive, hence we should accept the project Total Outflow B. ANNUAL CASH FLow Sales 200000 200000200000 125000 125000 125000 12000 12000 12000 30000 30000 30000 3300033000 33000 11220 11220 11220 21780 217S021780 3000030000 30000 51780 51780 51780 0.83333 0.69444 0.5787 12 13 ss: Vaiable Cost Less: Fixed Cost 15 16 Profit Before Taxes Less: Tax a 96 Profit After Taxes dd:Depreciation Cash Flow After Taxes PVF @ 20% 19 43150359582 C. TERMINAL CASH FLOW (Year 3) Re-Capture of working Capital PVF 20%, 3rd year 20000 0.5787 1157 26 , , H Sheet1 Sheet2 i Sheet3,ウ Ready !File Home Insert Page Layout﹁ Formulas Data Review View Developer Nitro Pro 5 EX Define Name ▼ Use in Formula- Create from Selection calculate Now | 떫 Trace Dependents ◆ Error Checking 水Remove Arrows, Q Evaluate Formula Insert Autosum Recently Financial Logical Text Date & Lookup & Math More Calculation Calculate Sheet Used Time Reference-aTrig, Functions-Manager window Function Library Defined Names Formula Auditing Calculation D. Net Present Value NPY A. INITIAL INVESTMENT (Year 0) Particulars Investment in Equipment Investment in Working Capital -SUM(C22:E22)+C28-C6 90000 20000 Decision: Since NPV is positive, hence we should accept the project Total Outflow B. ANNUAL CASH FLOW Selling Pice Sales Less: Variable Cost -C10 C11 -2.3*C10 D10D11 E10 E11 23 E10 12 13 -25 D10 12000 -90000 3 ess: Fined Cost Less: Depreciation Profit Before Taxes Less: Tax346 Profit After Taxes dd: Depreciation 15 -90000/3 -C12-c13.C14-C15-D12 D13-D14 D11-E12E13 E14 E15 -C16*0.34 -C16-C17 C15 -SUN IS:C19)|-SUN 18-D19)|-SU SEI -D16 0.34 -D16-D17 E16 034 E16-E17 18 19 D1 ash Flow After Taxes PVF 20% 21 -C21*C20 -D21 D20 -E21*E20 C. TERMINAL CASH FLOW Tear3 Re-Capture of W PVF 20%, 3rd vear 26 orking Cspital -E21 Sheetl Sheet2 sheet3 Ready ! | 80%

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