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Ronaldinho Manufacturing Company is considering a new equipment for their factory in Milan. The equipment costs $500,000 today and it will be...
Ronaldinho Manufacturing Company is considering a new equipment for their factory in Milan. The equipment costs $500,000 today and it will be depreciated on a straight-line basis over five years. In addition, the company's inventory will increase by $85,000 and accounts payable will rise by $40,000. All other operating working capital components will stay the same. The change in net working capital will be recovered at the end of third year at which time the company sells the equipment at an expected market value of $200,000. Dr. Alba, the financial manager of the company, has estimated that the equipment will generate revenues of $1,000,000 in year 1, $1,200,000 in year 2, and $1,500,000 in year 3. Dr. Alba has also estimated the operating costs, excluding depreciation, to be equal 75 percent of revenue of each year.
The project's cost of capital is 15 percent and the company's tax rate is 40 percent.
What is NPV and MIRR of the project?
