Your company has been doing well, reaching $1 million in
earnings, and is considering launching a new product. Designing the
new product has already cost $500,000. The company estimates that
it will sell 800,000 units per year for $3.00 per unit and
variable non-labor costs will be $1.00 per unit. Production will
end after year 3. New equipment costing $1 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 $300,000. The new product will require the working capital to
increase to a level of $380,000 immediately, then to $400,000 in
year 1, $350,000 in year 2, and finally return to $300,000. Your
tax rate is 35%. The discount rate for this project is 10%. Do the
capital budgeting analysis for this project and calculate its
NPV.
explanation on how to get the depreciation would be great,
too
Show transcribed image text Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Year 1 Year 2 Year 3 1100000 S 526000 S 74000 S Sales Cost of Goods Sold Gross Profit Depreciation EBIT – Tax Incremental Earnings Depreciation Incremental Working CapitalSS -Capital Investment Incremental Free Cash Flow The NPV of the project is s (Round to the nearest dollar.)
Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Year 1 Year 2 Year 3 1100000 S 526000 S 74000 S Sales Cost of Goods Sold Gross Profit Depreciation EBIT – Tax Incremental Earnings Depreciation Incremental Working CapitalSS -Capital Investment Incremental Free Cash Flow The NPV of the project is s (Round to the nearest dollar.)
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