Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo - 23005

Solution Posted by
SuperPower

SuperPower

Rating : (21)A
Solution Detail
Price: $4.99
  • From: , Microeconomics
  • Posted on: Mon 19 Aug, 2013
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description

TCO G) - (Ignore income taxes in this problem.) Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of Year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar's discount rate is 16%. 

Required:
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?

Solution Description

Previously, thank you for purchasing my tutorial. I try to