the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 10,400 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $53,000 in net working capital to start. Total fixed costs are $137,000 per year, variable production costs are $20 per unit, and the units are priced at $62 each. The equipment needed to begin production will cost $595,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 19 percent. What is the NPV of this project? (Do not round intermediate calculations and round

the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 10,400 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $53,000 in net working capital to start. Total fixed costs are $137,000 per year, variable production costs are $20 per unit, and the units are priced at $62 each. The equipment needed to begin production will cost $595,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 19 percent. What is the NPV of this project? (Do not round intermediate calculations and round

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

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Bha

Problem 6-27 Calculating Project NPV
With the growing popularity of casual surf print clothing, two recent MBA graduates
decided to broaden this casual surf concept to encompass a "surf lifestyle for the home."
With limited capital, they decided to focus on surf print table and floor lamps to accent
people's homes. They projected unit sales of these lamps to be 10,400 in the first year,
with growth of 6 percent each year for the next five years. Production of these lamps will
require $53,000 in net working capital to start. Total fixed costs are $137,000 per year,
variable production costs are $20 per unit, and the units are priced at $62 each. The
equipment needed to begin production will cost $595,000. The equipment will be
depreciated using the straight-line method over a 5-year life and is not expected to have
a salvage value. The tax rate is 24 percent and the required rate of return is 19 percent.
What is the NPV of this project? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
$
414,675.37
NPV

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