Your company has been doing well, reaching $1.06 million in earnings, and is considering launching a new product. Designing the new product has already cost $497,000. The company estimates that it will sell 827,000 units per year for $2.96 per unit and variable non-labor costs will be $1.18 per unit Production will end after year 3. New equipment costing $1.06 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 $309,000. The new product will require the working capital to increase to a level of $372,000 immediately, then to $408,000 in year 1, in year 2 the level will be $358,000, and finally in year 3 the level will return to $309,000. Your tax rate is 21%. The discount rate for this project is 10.2%. Do the capital budgeting analysis for this project and calculate its NPV Note Assume that the equipment is put into use in year 1. (irrelevant). (Select from the drop-down menu) Design already happened and is sunk. According to the 7-year MACRS schedule, depreciation in year 1 will be $ (Round to the nearest dollar)
Your company has been doing well, reaching $1.06 million in earnings, and is considering launching a new product. Designing the new product has already cost $497,000. The company estimates that it will sell 827,000 units per year for $2.96 per unit and variable non-labor costs will be $1.18 per unit Production will end after year 3. New equipment costing $1.06 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 $309,000. The new product will require the working capital to increase to a level of $372,000 immediately, then to $408,000 in year 1, in year 2 the level will be $358,000, and finally in year 3 the level will return to $309,000. Your tax rate is 21%. The discount rate for this project is 10.2%. Do the capital budgeting analysis for this project and calculate its NPV Note Assume that the equipment is put into use in year 1. (irrelevant). (Select from the drop-down menu) Design already happened and is sunk. According to the 7-year MACRS schedule, depreciation in year 1 will be $ (Round to the nearest dollar)
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:Your company has been doing well, reaching $1.06 million in earnings, and is considering launching a new product.
Designing the new product has already cost $497,000. The company estimates that it will sell 827,000 units per
year for $2.96 per unit and variable non-labor costs will be $1.18 per unit. Production will end after year 3. New
equipment costing $1.06 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 $309,000. The new product will require the working capital to increase to a level of $372,000 immediately,
then to $408,000 in year 1, in year 2 the level will be $358,000, and finally in year 3 the level will return to
$309,000. Your tax rate is 21%. The discount rate for this project is 10.2%. Do the capital budgeting analysis for this
project and calculate its NPV
Note Assume that the equipment is put into use in year 1.
www.
(irrelevant). (Select from the drop-down menu)
Design already happened and is sunk.
According to the 7-year MACRS schedule, depreciation in year 1 will be $
(Round to the nearest dollar)
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