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- Download: http://solutionzip.com/downloads/xyz-corporation/
- XYZ Corporation is considering the introduction of a new product.
- The project will last five years and then be terminated.
- The company’s marginal tax rate is 32%.
- The company’s cost of capital is 18%.
- The cost of the new plant and equipment for the project is $6,000,000.
- Shipping and Installation costs are $100,000.
- Projected sales are:
- Year Units Sold
- 1 60,000
- 2 110,000
- 3 130,000
- 4 90,000
- 5 80,000
- Sales price per unit:
- $125 per unit in years 1-3
- $110 per unit in years 4
- $90 per unit in year 5
- Variable cost per unit: $75 per unit.
- Annual fixed costs: $225,000.
- Initial Working Capital Required is $250,000 to start the project.
- For each year, the total investment in net working capital will be equal to 10% of sales. All working capital is liquidated at the termination of the project at the end of year 5.
- Depreciation method: Use simplified straight-line depreciation over five years. It is assumed the plant and equipment will have no salvage value at the end of the project.
- Based on the above information, answer the following question:
- What is the Internal Rate of Return of the project?
- Download: http://solutionzip.com/downloads/xyz-corporation/
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