Electronic Guitars (EG) is considering producing a new guitar and has paid a consultant £5,000 to do some research on the guitar market. The consultant estimates that unit sales for a new guitar would be as follows: Year 1 Unit sales = 85,000 Year 2 Unit sales = 98,000 Year 3 Unit Sales = 106,000 Year 4 Unit Sales = 114,000 Year 5 Unit Sales = 93,000 Production of the guitar will require investments in Net Working Capital each year, including in Year 0, so that at the end of each year the working capital is 15 per cent of the projected sales for the following year. In addition, in Year 0 the project requires an additional initial investment in NWC of €1,500,000. Total fixed costs are €900,000 per year, variable production costs are €240 per unit, and the units are priced at €325 each. The equipment needed to begin production has an installed cost of €21,000,000 and is depreciated using the straight line method. EG is in the 23 per cent marginal tax bracket, and has a required return on all its projects of 14 per cent. Based on these preliminary project estimates, what is the NPV of the project? Should the firm go ahead with the project? Need help finding the OCF AND PV of the project
Electronic Guitars (EG) is considering producing a new guitar and has paid a consultant £5,000 to do some research on the guitar market. The consultant estimates that unit sales for a new guitar would be as follows:
Year 1 Unit sales = 85,000
Year 2 Unit sales = 98,000
Year 3 Unit Sales = 106,000
Year 4 Unit Sales = 114,000
Year 5 Unit Sales = 93,000
Production of the guitar will require investments in Net Working Capital each year, including in Year 0, so that at the end of each year the working capital is 15 per cent of the projected sales for the following year. In addition, in Year 0 the project requires an additional initial investment in NWC of €1,500,000.
Total fixed costs are €900,000 per year, variable production costs are €240 per unit, and the units are priced at €325 each.
The equipment needed to begin production has an installed cost of €21,000,000 and is
EG is in the 23 per cent marginal tax bracket, and has a required return on all its projects of 14 per cent.
Based on these preliminary project estimates, what is the NPV of the project? Should the firm go ahead with the project?
Need help finding the OCF AND PV of the project
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