With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...

They projected unit sales of these lamps to be 14,000 for each of the next five years. Production of these lamps will require $35,000 in net working capital invested immediately. The working capital will be fully recovered at the end of year 5. Fixed costs are $95,000 per year, variable production costs are $30 per unit, and the units are priced at $65 each.

a. The equipment needed to begin production will cost $500,000. The equipment will be depreciated using the straight-line method over a five-year life and is expected to have a salvage value of $80,000. The effective tax rate is 21 percent, and the required rate of return is 10 percent. What is the Net Present Value of this project?

b. After you complete this task, the two entrepreneurs want you to tell them what the impact on the NPV would be if the Production cost per unit increased to $45.

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jeff jeffy answered 1 week ago

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