We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year Unit Sales 1 99,500 2 111,500 3 134,500 4 140,500 5 93,500 The new system will be priced to sell at $460 each. The cockroach eradicator project will require $1,900,000 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 $330, and total fixed costs are $2,200,000 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. The relevant tax rate is 35%, and the required return is 14%. 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. NPV =
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year Unit Sales 1 99,500 2 111,500 3 134,500 4 140,500 5 93,500 The new system will be priced to sell at $460 each. The cockroach eradicator project will require $1,900,000 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 $330, and total fixed costs are $2,200,000 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. The relevant tax rate is 35%, and the required return is 14%. 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. NPV =
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:We project unit sales for a new household-use laser-guided cockroach search and destroy
system as follows:
Year
Unit Sales
1
99,500
2
111,500
3
134,500
4
140,500
5
93,500
The new system will be priced to sell at $460 each.
The cockroach eradicator project will require $1,900,000 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 $330, and total fixed costs are $2,200,000 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.
The relevant tax rate is 35%, and the required return is 14%. 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.
NPV =
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