Margarite's Enterprises is considering a new project.The project will require €325,000 for new non- current assets, €160,000 for additional inventory and €35,000 for additional trade receivables.
Short-term debt is expected to increase by €100,000 and long-term debt is expected to increase by
€300,000.The project has a 5-year life.The non-current assets will be depreciated straight-line to a
Zero book value over the life of the project.At the end of the project, the non-current assets can be
Sold for 25% of their original cost.The net working capital returns to its original level at the end of
The project.The project is expected to generate annual sales of €554,000 and costs of €430,000.
The tax rate is 35% and the required rate of return is 15%.What is the amount of the earnings before
Interest and taxes for the ﬁrst year of this project?

Question

Quizplus · Accepted Answer

The Answer of Margarite's Enterprises is considering a new project.The project will require €325,000 for new non- current assets, €160,000 for additional inventory and €35,000 for additional trade receivables.
Short-term debt is expected to increase by €100,000 and long-term debt is expected to increase by
€300,000.The project has a 5-year life.The non-current assets will be depreciated straight-line to a
Zero book value over the life of the project.At the end of the project, the non-current assets can be
Sold for 25% of their original cost.The net working capital returns to its original level at the end of
The project.The project is expected to generate annual sales of €554,000 and costs of €430,000.
The tax rate is 35% and the required rate of return is 15%.What is the amount of the earnings before
Interest and taxes for the ﬁrst year of this project?

Margarite's Enterprises Is Considering a New Project