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BathGate Group Has Just Completed Its Analysis of a Project

question 59

Essay

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 percent 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 percent.The corporate tax rate is 30 percent.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 percent per year. Assume the required rate of return is nominal at 8 percent.
C) Calculate the NPV of this project if inflation is forecasted to be 2 percent per year and the firm requires a real rate of return of 8 percent.

Definitions:

Visionary Leadership

A leadership style characterized by the ability to envision future possibilities and inspire others to work towards these goals.

Core Principle

Fundamental beliefs or guiding truths that form the foundation for the system of thought or behavior of an individual, group, or organization.

Managers

Professionals responsible for planning, leading, organizing, and controlling resources to achieve organizational goals.

Empowerment

Empowerment refers to the process of giving individuals or groups the authority, resources, and confidence to take control of their own decisions and actions.