A company is considering a project with a 6-year economic life. The project is expected to cost $200,000 and have a salvage value of $30,000. 5 year MACRS depreciation will be used. The company has a 10% cost of capital and a marginal tax rate of 35%. Careful analysis reveals that the company should expect to sell 100,000 toys during the first year of operations at $5.00 per unit. The first year COGS is expected to be $3.75 per toy. It is expected that inflation will cause revenues to increase by 3.5% per year and the COGS to increase by 3.25% per year for the projects life. Increased demand is expected to increase the quantity produced and sold by 3% per year. The project will require a $25,000 increase in working capital at the beginning of the project.
b. If the cost of capital was to increase to 11%, recomputed the NPV, MIRRR, and profitability index for the project.
Note: Use excel spreadsheet, if possible
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