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    Joe Brown and Fred Anthony are planning to invest in a Go Green project. The marginal tax rate is 26% and the company tax rate is 30%. Due to their lack of finance expertise, they have asked your assistance in determining whether they should invest in Go Green or not.

  •     They have provided you with the following information:
  •     The project has a life of 6 years.
  •     The equipment costs $280000 with an additional installation cost of $25000.
  •     The equipment will be sold at the end of project life for $55,000
  •     Straight line method is used in calculating depreciation.
  •     The Fiji Tax Authority has given this type of equipment an effective life of 5 years.
  •     Sales for the first year will be $85000 and sales are expected to grow at 7% pa for each year of the project.
  •     Cost of goods sold is 18 percent of sales every year
  •     Working capital will be 7% of sales revenues for each year. The working capital investment has to be made at the start of each period. All working capital will be recovered.
  •     Marketing costs will be 2% of sales per annum.
  •     The hurdle rate is 10%.

    Required:

    a. find out NPV for Go Green project. (10 marks)

    b. find out IRR for Go Green project usin

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9634

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