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In: Finance

You are the CFO and are considering introducing a new product that will require an initial...

You are the CFO and are considering introducing a new product that will require an initial investment in equipment of $6 million. The equipment will be depreciated straight line over 3 years to a value of zero, and can be sold after 3 years for $500,000. Working capital at each date must be maintained at a level of 10% of the following year’s forecast sales. You estimate production costs at $1.50 /unit and the sales price at $4/unit. Sales forecasts are given in the following table. The tax rate is 35%, and the discount rate is 12%. What is the project NPV?

Year

0

1

2

3

Sales (millions) of units

0

0.5

0.6

1.0

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jeff jeffy answered 3 months ago
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