Question

We are evaluating a project that costs $844,200, has a nine-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 80,000 units per year. Price per unit is $54, variable cost per unit is $38, and fixed costs are $760,000 per year. The tax rate is 23 percent, and we require a return of 10 percent on this project. What is the missing information?

a) Net present value
b) Internal rate of return
c) Depreciation expense
d) Projected cash flows

Answer 1

The missing piece of information from the student's project evaluation is the projected cash flows, which are necessary for those evaluating the project's worth and financial viability.

Step-by-step explanation:

The student is evaluating a project and is trying to determine what piece of information is missing from the provided details. After analyzing the data, it's apparent that the missing information is the projected cash flows. The student has the initial cost, life of the project, sales projections, per unit costs, and fixed costs. Calculating the depreciation expense is straightforward with the straight-line method over a nine-year period. The calculation for economic profit (total revenues – explicit costs – implicit costs) also aligns with the information given, as well as the required rate of return for the net present value (NPV) analysis or the internal rate of return (IRR). However, without the cash flows, we cannot complete the NPV or IRR calculations, which are essential for financial decision-making in this business scenario.