Question
In: Finance
A firm is considering investing in a new product with a five-year life. To do this...
A firm is considering investing in a new product with a five-year life. To do this it will need to buy new equipment that costs $10 million and that has a salvage value of $500,000. This equipment depreciates straight-line over its five-year life. The product sells at $20 per unit. Sales are expected to start at 400,000 units and to grow at the rate of 5% per year. The variable cost per unit is $12. The firm’s tax rate is 40 and the firm requires an investment of $20,000 in working capital each year. Find the NPV, IRR, PI using a required return of 10%.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are considering a new product launch. The project will cost $1,282,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,282,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 410
units per year; price per unit will be $20,300, variable cost per
unit will be $16,800, and fixed costs will be $339,000 per year.
The required return on the project is 15 percent, and the relevant
tax rate is 30 percent. Based on your experience, you think the
unit...
You are considering a new product launch. The project will cost $1,232,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,232,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 310
units per year; price per unit will be $19,300, variable cost per
unit will be $15,800, and fixed costs will be $329,000 per year.
The required return on the project is 13 percent, and the relevant
tax rate is 35 percent.
Based on your experience, you think the unit...
You are considering a new product launch. The project will cost $574,000, have a five-year life,...
You are considering a new product launch. The project will cost
$574,000, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 160
units per year; price per unit will be $16,000, variable cost per
unit will be $12,500, and fixed costs will be $179,000 per year.
The required return on the project is 13.5 percent, and the
relevant tax rate is 35 percent. Based on your experience, you
think the unit...
You are considering a new product launch. The project will cost $1,222,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,222,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 290
units per year; price per unit will be $19,100, variable cost per
unit will be $15,600, and fixed costs will be $327,000 per year.
The required return on the project is 15 percent, and the relevant
tax rate is 30 percent.
Based on your experience, you think the unit...
You are considering a new product launch. The project will cost $1,202,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,202,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 250
units per year; price per unit will be $18,700, variable cost per
unit will be $15,200, and fixed costs will be $323,000 per year.
The required return on the project is 15 percent, and the relevant
tax rate is 35 percent. Based on your experience, you think the
unit...
You are considering a new product launch. The project will cost $1,192,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,192,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 230
units per year; price per unit will be $18,500, variable cost per
unit will be $15,000, and fixed costs will be $321,000 per year.
The required return on the project is 13 percent, and the relevant
tax rate is 30 percent.
Based on your experience, you think the unit...
You are considering a new product launch. The project will cost $1,192,500, have a five-year life,...
You are considering a new product launch. The project will cost
$1,192,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 230
units per year; price per unit will be $18,500, variable cost per
unit will be $15,000, and fixed costs will be $321,000 per year.
The required return on the project is 13 percent, and the relevant
tax rate is 30 percent.
Based on your experience, you think the unit...
You are considering a new product launch. The project will cost $4,500,000, have a five-year life,...
You are considering a new product launch. The project will cost
$4,500,000, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 750
units per year; price per unit will be $15,500, variable cost per
unit will be $12,200, and fixed costs will be $850,000 per year.
The required return on the project is 11 percent, and the relevant
tax rate is 25 percent. Based on your experience, you think the
unit...
You are considering a new product launch. The project will cost $4,500,000, have a five-year life,...
You are considering a new product launch. The project will cost
$4,500,000, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 750
units per year; price per unit will be $15,500, variable cost per
unit will be $12,200, and fixed costs will be $850,000 per year.
The required return on the project is 11 percent, and the relevant
tax rate is 25 percent. Based on your experience, you think the
unit...
Your firm is considering investing $30 million to develop a new product. It is expected that...
Your firm is considering investing $30 million to develop a new
product. It is expected that it will take 18 months to develop the
product. If the firm decides to take the product to market it will
cost $300 million and six months to build production and
distribution facilities. The expected incremental after-tax inflows
from this new product will be $10 million in year 1 of operations
and is expected to grow by 3%/year in perpetuity. If the discount
rate...
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