We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 NPV 5 Unit Sales 97,000 109,000 132,000 138,000 91,000 Check my work The new system will be priced to sell at $435 each. The cockroach eradicator project will require $2,200,000 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 $305, and total fixed costs are $1,700,000 per year. The equipment necessary to begin production will cost a total of $18 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 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.) $

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...
icon
Related questions
Question

5

We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:
Year
1
2
3
4
5
Unit Sales
97,000
109,000
132,000
138,000
91,000
NPV
Check my work
The new system will be priced to sell at $435 each.
The cockroach eradicator project will require $2,200,000 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 $305, and total fixed costs are $1,700,000 per year. The equipment necessary to
begin production will cost a total of $18 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 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.)
$
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 Unit Sales 97,000 109,000 132,000 138,000 91,000 NPV Check my work The new system will be priced to sell at $435 each. The cockroach eradicator project will require $2,200,000 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 $305, and total fixed costs are $1,700,000 per year. The equipment necessary to begin production will cost a total of $18 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 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.) $
Expert Solution
steps

Step by step

Solved in 5 steps with 5 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,