Company XYZ is considering an investment opportunist in \'11. The financiers ass

Question

Company XYZ is considering an investment opportunist in '11. The financiers associated with this Project tor year 1 are: Sales 350.000 Expenses (Ex Deep) 265.000 Sales & Expenses are expected to increase by Fixed Asset (Investment) associated with this project arc expected to cost Fixed Assets will be depreciate I via the 5 year K ACRS. The pro cat will be evaluated over 3 years. The Company tax bracket is: 40% The Company intends to finance the project similar to the way they have financed projects historically. P data is as follows: Docs the project pass the company's criteria for a Payback? Why? NPV? Why. What is the maximum hurdle rate that at which this project would be accepted'

Explanation / Answer

Pay back = initial investment / annual cash inflows

                = 150000 / (350000 - 265000)

                = 1.76 years.

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