The relevant tax rate is 35%, and the required return is 15%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:
Year
1
2
3
4
5
The new system will be priced to sell at $465 each.
The cockroach eradicator project will require $2,000,000 in net working capital to start, and total net working
capital will rise to 15% of the change in sales. The variable cost per unit is $335, and total fixed costs are
$2,300,000 per year. The equipment necessary to begin production will cost a total of $21 million. This equipment
is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually
be worth about 20% of its cost.
NPV
Unit Sales
100,000
112,000
135,000
141,000
94,000
The relevant tax rate is 35%, and the required return is 15%. Based on these preliminary estimates, what is the NPV
of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer
to 2 decimal places. Omit $ sign in your response.)
LA
Transcribed Image Text:We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 The new system will be priced to sell at $465 each. The cockroach eradicator project will require $2,000,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $335, and total fixed costs are $2,300,000 per year. The equipment necessary to begin production will cost a total of $21 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. NPV Unit Sales 100,000 112,000 135,000 141,000 94,000 The relevant tax rate is 35%, and the required return is 15%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) LA
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