Your company has been doing well, reaching $1.05 million in earnings, and is considering launching a new product. Designing the new product has already cost $543,000. The company estimates that it will sell 756,000 units per year for $2.91 per unit and variable non-labor costs will be $1.05 per unit. Production will end after year 3. New equipment costing $1.18 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $304,000. The new product will require the working capital to increase to a level of $390,000 immediately, then to $401,000 in year 1, $360,000 in year 2, and finally return to $304,000. Your tax rate is 35%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Sales -Cost of Goods Sold Gross Profit -Depreciation EBIT - Tax Incremental Earnings + Depreciation - Incremental Working Capital - Capital Investment Incremental Free Cash Flow $ $ $ $ $ S $ $ $ S
Your company has been doing well, reaching $1.05 million in earnings, and is considering launching a new product. Designing the new product has already cost $543,000. The company estimates that it will sell 756,000 units per year for $2.91 per unit and variable non-labor costs will be $1.05 per unit. Production will end after year 3. New equipment costing $1.18 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $304,000. The new product will require the working capital to increase to a level of $390,000 immediately, then to $401,000 in year 1, $360,000 in year 2, and finally return to $304,000. Your tax rate is 35%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Sales -Cost of Goods Sold Gross Profit -Depreciation EBIT - Tax Incremental Earnings + Depreciation - Incremental Working Capital - Capital Investment Incremental Free Cash Flow $ $ $ $ $ S $ $ $ S
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
Related questions
Question
Please answer Year 0~ Year 3 all questions, Thank you.
Transcribed Image Text:Your company has been doing well, reaching $1.05 million in earnings, and is considering launching a new product. Designing the new product has already cost $543,000. The company estimates that it will sell 756,000 units per year for $2.91 per unit and variable non-labor costs will be $1.05 per
unit. Production will end after year 3. New equipment costing $1.18 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $304,000. The new
product will require the working capital to increase to a level of $390,000 immediately, then to $401,000 in year 1, $360,000 in year 2, and finally return to $304,000. Your tax rate is 35%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its
NPV
Complete the capital budgeting analysis for this project below: (Round to the nearest dollar)
Sales
- Cost of Goods Sold
Gross Profit
- Depreciation
EBIT
- Tax
Incremental Earnings
+Depreciation
- Incremental Working Capital
- Capital Investment
Incremental Free Cash Flow
$
$
$
$
$
$
$
$
$
$
Year 0
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