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You will assess whether to make the investment or not. Use

Resolved Question:

You will assess whether to make the investment or not. Use your accept-reject rules for the net present value and the internal rate of return.

Redbird, Inc. is considering an addition to its current operations. The figures are below.

Cost of the new project $3,000,000

Installation costs $100,000

Estimated unit sales in year 1 40,000

Estimated unit sales in year 2 65,000

Estimated unit sales in year 3 35,000

Estimated sales price in year 1 $200

Estimated sales price in year 2 $200

Estimated sales price in year 3 $150

Variable cost per unit $130

Annual fixed cost $40,000

Initial working capital needed $60,000

Additional Working capital needed 5 % of sales

Depreciation method 5 years straight-line method, no salvage value

Redbird’s tax rate 40%

Redbird’s cost of capital 15%

Calculate Operating Cash Flow, change in Net Working Capital, and calculate Free Cash Flow. Show your calculations in a Word document or an Excel spreadsheet. Determine the NPV and IRR of the project. Show your calculations in a Word document or an Excel spreadsheet. Assess the project. Be sure to state the basis upon which you made your option choices. You should prepare a one-page executive summary of your findings, with 3–5 pages of supporting analysis. You must submit your backup in Excel or other supporting documentation showing how answers were reached. Assignment 2 Grading Criteria Maximum Points Demonstrated an ability to estimate the Cash Flows. 30 Demonstrated an ability to calculate NPV and IRR of the project. 30 Presented basis and justification for option selected. 10 Total: 70

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