Louie's Leisure Products is considering a 4-year project which will require the purchase of $1.2 million in new equipment. The project will use existing land for a warehouse. The market value of the land is $1 million and is expected to remain unchanged in the future. The equipment will be depreciated straight-line to a book value of $0.2 million over the 4-year life of the project. Louie's expects to sell the equipment at the end of the project for 25% of its original cost. Annual sales from this project are estimated at $1.2 million. The operating cost is 25% of the sales revenue. Net working capital equal to 20% of sales will be required to support the project. The firm desires a 10% rate of return on this project. The tax rate is 40%. Should Louie's Leisure Products accept the project?
Louie's Leisure Products is considering a 4-year project which will require the purchase of $1.2 million in new equipment. The project will use existing land for a warehouse. The market value of the land is $1 million and is expected to remain unchanged in the future. The equipment will be
Step by step
Solved in 3 steps with 2 images
