XYZ Corp. Is considering investing in a project (shoe factory) that cost the company $300,000 today. This project can be depreciated using straight line method over its useful life of 10 years. The sales and related costs are as follows:Sale: 2000 shoes can be sold at $80 per shoe.Variable cost: $30 per shoe.Annual fixed cost: $20,000Administrative expenses; $10,000

Tax rate : 40 percentSalvage value : $30,000Cost of capital: 12 %What is NPV?What is IRR?What is MIRR if the company can reinvest the cash flows at 10% percent per year.

Sales 2000 X $80 160,000VC 2000X $30 -60,000FC -20,000Operating profits 80,000Administrative Exp -10,000Minus Depreciation -30,000EBIT 40,000Interest 0EBT 40,000-Taxes (.4) -16,000Net Income 24,000

Annual cash flow = Net Income + Depreciation= 24,000 + 30,000 = 54,000Salvage value after tax =30,000 (1-.4) = 18000NPV = PV of operating cash flow + PV of salvage – initial cost = 305,112 +5,796 – 300,000 = $10,908 , NPV > 0, accept the project

IRR = ?

MIRR:FV of CF = 860,621 + 18,000 = 878,621

MIRR = 11.34% < 12%, Reject the project