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[answered] Axillar Beauty Products Corporation is considering the prod


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 $500,000, 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 5. 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 $110,000 per year for each of the 10 years. Axillar's discount rate is 15%.


Required:

Part A: What is the net present value of this investment opportunity?

Part B: Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?


New shampoo net inflows

 

Working capital release

 

Salvage value 552064.55

 

9887.3882449

 

12359.235306 Machinery

 

Overhaul

 

Working capital investment

 

Net present value -500,000

 

-17401.18574

 

-40000...

 


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