Angie Watts 1 Essay

Words: 1279
Pages: 6

[Title Here, up to 12 Words, on One to Two Lines]Wheel Industries Consultant Report
Argosy University
Professor Charlie Merritt Financial Management | FIN401 A02 Company Information

Wheel Industries is considering a three-year expansion project, Project A. The project requires an initial investment of \$1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of \$1.2 million per year before tax and has additional annual costs of \$600,000. The Marginal Tax rate is 35%. Wheel has just paid a dividend of \$2.50 per share. The dividends are
Itâ€™s economically for the project to be accepted Now calculate the IRR for the project. Is this an acceptable project? Why or why not? Is there a conflict between your answer to part C? Explain why or why not? (Excel format)
Year Cash Flow
0 \$(1,500,000.00)
1 \$565,000.00
2 \$565,000.00
3 \$565,000.00
IRR 6.37%
Yes, therefore the project is acceptable the (IRR) is greater because of the cost of capital is by (6%). There are no conflict given the cash flow remain normal and furthermore will not have compound (IRR).

Wheel has two other possible investment opportunities, which are mutually exclusive, and independent of Investment A above. Both investments will cost \$120,000 and have a life of 6 years. The after tax cash flows are expected to be the same over the six year life for both projects, and the probabilities for each year's after tax cash flow is given in the table below. (Excel Format)
Investment B Investment C
Probability after Tax Cash flow Probability after Tax Cash flow
0.25 20000 0.3 2000
0.5 32000 0.5 40000
0.25 40000 0.2 50000
Solution
Expected Value:
Investment B
Probability after Tax Cash flow Expected