Finance: finance – #276


Question: Question 2: Sanders Enterprises, Inc. has been considering the purchase of a new manufacturing facility for $120,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to be in operations for seven years, and that it will have no resale value after the seven years. Operating revenues from the facility are expected to be $50,000 at the end of the first year, and are expected to increase at the rate of 5 percent per year. Production costs at the end of the first year will be $20,000, and they are expected to increase at 7 percent per year. The discount rate is 14 percent. The corporate tax rate is 34 percent. Sanders has other ongoing, profitable operations. Should the company accept the project?

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