The Taylor Mountain Uranium Company currently has annual revenues of $1.2 million and annual expenses...
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The Taylor Mountain Uranium Company currently has annual revenues of $1.2 million and annual expenses exclusive of depreciation of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firms marginal tax rate is 40 percent.
A new high-speed processing unit costing $1.2 million is being considered as a potential investment designed to increase the firms output capacity. This new piece of equipment will have an estimated usable life of 10 years and a $0 estimated salvage value. If the processing unit is bought, Taylors annual revenues are expected to increase to $1.6 million, and annual expenses exclusive of depreciation will increase to $900,000. Annual depreciation will increase to $320,000. Assume that no increase in net working capital will be required as a result of this project.
Calculate the processing units net present value, using a 12 percent required return.
Should Taylor accept the project?
How many internal rates of return does the processing unit project have? Why?
Calculate the processing units internal rate of return.
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