The NPV of this Project is ____ (round to 4 decimal places) Your company has bee
ID: 2739549 • Letter: T
Question
The NPV of this Project is ____ (round to 4 decimal places)
Your company has been doing well, reaching $1.12 million in earnings, and is considering launching a new product. Designing the new product has already cost $525, 000. The company estimates that it will sell 826, 000 units per year for $2.93 per unit and variable non-labor costs will be $1.06 per unit. Production will end after year 3. New equipment costing $1.02 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 $298, 000. The new product will require the working capital to increase to a level of $380, 000 immediately, then to $410, 000 in year 1, $341, 000 in year 2, and finally return to $298, 000. Your tax rate is 35%. The discount rate for this project is 10.4%. 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.)Explanation / Answer
Year 0 1 2 3 Contribution per unit 1.87 1.87 1.87 Total Cotribution 1544620 1544620 1544620 Less : Depreciation 145758 249798 178398 Net incremental income 1398862 1294822 1366222 Less : Tax @ 35% 489601.7 453187.7 478177.7 After tax income 909260.3 841634.3 888044.3 Cash Flow from operation 1055018 1091432 1066442 Cash Flow for WC changes -82000 -30000 69000 43000 Cost of equipment -1020000 Sale of equipment at book value 446046 Net Cash flow -1102000 1025018 1160432 1555488 DF @ 10.4% 1 0.905797 0.820468 0.743178 PV -1102000 928458.6 952098 1156005 1934561 NPV 1934561