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szehim2009 szehim2009
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BathGate Group has just completed its analysis of a project. The CFO has presented the following information to the Board of Directors:
The initial cost of the project is $15,000. Sales are expected to be 10,000 units in year one and are expected to grow by 5% per year forever. In year one, they expect to sell units for $2 each and foresee no real change in unit price. Variable and fixed costs are zero.
The firm's required rate of return is 8%. The corporate tax rate is 30%. Assume the CCA rate is zero.

a) Calculate the NPV of this project if there is zero inflation forecast.
b) Calculate the NPV of this project if inflation is forecasted to be 2% per year. Assume the required rate of return is nominal at 8%.
c) Calculate the NPV of this project if inflation is forecasted to be 2% per year and the firm requires a real rate of return of 8%.
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Corporate Finance

Corporate Finance


Edition: 5th
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channy40channy40
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szehim2009 Author
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A month ago
Smart ... Thanks!
Evolution
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Yesterday
Thanks
linlinlin
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2 hours ago
Thanks for your help!!
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