Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investmentin new equipment costing $2,880,000. The printer has a projected life cycle of 5 years.After 5 years, the equipment can be sold for $360,000. Working capital is also expected toincrease by $360,000, which Talmage will recover by the end of the new product’s life cycle.Annual cash operating expenses are estimated at $1,620,000. The required rate of returnis 8%.Required:1. Prepare a schedule of the projected annual cash flows.2. Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670).3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment
in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years.
After 5 years, the equipment can be sold for $360,000.
increase by $360,000, which Talmage will recover by the end of the new product’s life cycle.
Annual cash operating expenses are estimated at $1,620,000. The required rate of return
is 8%.
Required:
1. Prepare a schedule of the projected annual cash flows.
2. Calculate the
3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
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