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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 Unit Sales 100,000 112,000 135,000 141,000 94,000 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 percent of the change in sales. The variable cost per unit is $335, and total fixed costs are $2.300.000 per year The equipment

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 100,000 112,000 135,000 141,000 94,000 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 percent of the change in sales. The variable cost per unit is $335, and total fixed costs are $2.300.000 per year The equipment

Essentials Of Investments
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
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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 NPV Unit Sales 100,000 112,000 135,000 141,000 94,000 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 percent 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 percent. In five years. this equipment will actually be worth about 20 percent of its cost. The relevant tax rate is 35 percent, and the required return is 15 percent. 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.)
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 NPV Unit Sales 100,000 112,000 135,000 141,000 94,000 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 percent 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 percent. In five years. this equipment will actually be worth about 20 percent of its cost. The relevant tax rate is 35 percent, and the required return is 15 percent. 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.)
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