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Your company wants to launch a new product. The price will be $108 and the projected...

Your company wants to launch a new product. The price will be $108 and the projected units sold will be 5,000 each of the next five years and then zero sales after that (i.e. life of five years). Variable costs per unit is $47 and fixed costs will be $36,000 per year. This project will need initial net working capital of $37,000, and NWC will then increase $7,000 per year through the end of year five. At that point 75% of NWC (no tax ramifications) will be returned to the company. Necessary equipment investment will be $900,000 and have a salvage value of 23%, net of tax. The depreciation will be straight-line over the life of this project. Your company’s current debt/equity ratio is 1.15 and this product is in line with the operations of the rest of your company. Your company is in the 21% tax bracket. Your equity investors demand a 13% return and your company’s bonds yield 5.3%. Even though no debt will be used, you still need to use your company’s WACC. Price is accurate within 5%, units sold within 3%, and variable & fixed costs within 2%. What is the NPV in the worst-case scenario?

  • 34,746

  • -56,148

  • 75,322

  • 134,963

  • -145,369

  • 95,147

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Expert Solution

please find attached answer

jeff jeffy answered 1 year ago
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