Adela plans to set up a sewing workshop. She estimates that renting a well-located shop would cost her $ 1,000,000 per month. In addition, she needs to buy an industrial sewing machine for $ 800,000, an overlock machine for $ 500,000, and a cutting machine for $ 600,000. He also needs to buy an ironing machine worth $650,000 and cutting tables and other furniture for an estimated total of $1,500,000. The corporate tax rate is 25% and the fixed assets are depreciated on a straight-line basis over 4 years. The residual value of the fixed assets is equal to 10% of their acquisition value. Adela estimates that in the first year she would generate $25 million in sales revenue, which is estimated to increase by $5 million per year to $40 million per year in the fourth year. Of this amount, the cost of sales is 20% of sales and in addition it must cancel administrative and salary expenses of $ 10 million annually. IT IS REQUESTED: Considering the above, make the 4-year evaluation to conclude whether project is profitable or not. Consider a discount rate of 15% and that Internal Revenue Service (IRS) allows use of losses declared in previous periods as a credit to income tax.
Adela plans to set up a sewing workshop. She estimates that renting a well-located shop would cost her $ 1,000,000 per month. In addition, she needs to buy an industrial sewing machine for $ 800,000, an overlock machine for $ 500,000, and a cutting machine for $ 600,000. He also needs to buy an ironing machine worth $650,000 and cutting tables and other furniture for an estimated total of $1,500,000.
The corporate tax rate is 25% and the fixed assets are depreciated on a straight-line basis over 4 years.
The residual value of the fixed assets is equal to 10% of their acquisition value.
Adela estimates that in the first year she would generate $25 million in sales revenue, which is estimated to increase by $5 million per year to $40 million per year in the fourth year. Of this amount, the cost of sales is 20% of sales and in addition it must cancel administrative and salary expenses of $ 10 million annually.
IT IS REQUESTED: Considering the above, make the 4-year evaluation to conclude whether project is profitable or not. Consider a discount rate of 15% and that Internal Revenue Service (IRS) allows use of losses declared in previous periods as a credit to income tax.
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