In: Accounting
Based on the following information for project X, should we undertake the venture? (Use NPV technique). Project X involves a new type of design. We think we can sell 6,000 units per year at a price of 1 € each. Variable costs will run about 0.4 € per unit, and the product should have a four-year life. Fixed costs for the project will run 450 € per year. Further, we will need to invest a total of 4000 € in manufacturing equipment and would be depreciated to zero residual value over four years using the straight-line depreciation method. We will have to invest 3000 € in net working capital at the start. After that, net working capital requirements will be 25 percent of sales. (Tax rate 20 percent)