As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project’s life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACC is 11%. Management is uncertain about the exact unit sales. What would the project’s NPV be if unit sales turned out to be 20% below forecast, but other inputs were as forecasted? Would this change the decision? NPV = $ Accept or Reject? project
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully
Management is uncertain about the exact unit sales. What would the project’s
NPV = $
Accept or Reject? project
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