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A baseball company is thinking of opening a new production facility. Key data are shown below. It owns a building that is suitable for this purpose. There is, however, a developer who has offered $250,000 for the building which would net them $175,000 after taxes if they decides not to use the existing building for the production facility. The production equipment necessary for the project would be fully depreciated on a straight line basis by the end of the project’s 4 year life (ie book value will equal O). The working capital investment that they must 1 make in the first year of the project is expected to be recouped in year 5. Revenues and operating expenses will be constant over the life of 2 the project. Model the opportunity as if the existing building would be used for the new facility. What is this project’s NPV? Round to whole dollars please. 3 Would you accept this project, why or why not? 4 5 WACC 16 Production Equipment Cost 17 Straight Line Depreciation Each Year 18 Annual Revenue 19 Annual COGS 20 Annual Operating Expenses 21 Tax Rate 22 Days of Accounts Receivable Outstanding 22 Inventory Turnover 24 Accounts Payable Days Outstanding 25 12% $ 135,000 25% (included in Operating Expenses) $ 250,000 S 70,000 S 70,000 22% 42 days 4 x 30 days


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