Texas Roks, Inc. is considering a new quarry machine. The costs and revenues associated with the machine have been provided to you for analysis:
Cost of the new project
Estimated unit sales in year 1
Estimated unit sales in year 2
Estimated unit sales in year 3
Estimated sales price in year 1
Estimated sales price in year 2
Estimated sales price in year 3
Variable cost per unit
Annual fixed cost
Additional working capital needed
3 years straight-line method, no salvage value
Texas Rok’s tax rate
Texas Rok’s cost of capital
Calculate operating cash flow and the change in net working capital. Determine the NPV and IRR of the project. Should the company accept or reject the project based on the NPV? Why? Should the company accept or reject the project based on the IRR? Why? What is your final accept or reject decision? Why? What is the payback period for this project? Would this influence your decision to accept or reject? Submit your findings to the above questions in a Microsoft Word or Excel document. Use an Excel document to illustrate your calculations.
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