Question

additional investments of $20,000 in year 1, $20,000 in year 2, $60,000 in year 3, expected to generate sales of $741,000 in year 1, $915,000 in year 2, $1,022,000 in ,280 per year. Other operating expenses are expected to be 74% of The company is contemplating a new investment in a ski resort. The initial capital investment will be $330,000, with $50,000 in year 4 and $40,000 in year 5. The investment is year 3, $1,135,000 in year 4 and $1,203,000 in year 5, Direct cost of sales is anticipated to be 11% of sales. Depreciation will be $14 sales in year 1, 66% of sales rate of 25%. in year 2 and 64% of sales in years 3 through 5 Assume an overall tax As part of the project the company will need to budget for initial net working capital of $40,000. Ending working capital should be budgeted as $45,400 in year 1, $150,500 in year 2, $218,600 in year 3, $284,000 in year 4 and $300,000 in year 5 The company requires a payback period of 5 years or less. Based on a required rate of return of 7.5%, determine if this investment should be undertaken. The company also has the opportunity for a mutually-exclusive alternative investment In that case the company would need make an initial capital investment of $630,000. The project would have an internal rate of return of 8.10%, a payback period of 4.3536 years, a net present value of $15,784 and a profitability index of 1.0212. Also evaluate if this investment should be undertaken and which alternative would be a better investment Please contact me if you have any questions