Question

Earp Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $976,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 21,000 keyboards each year. The price of each keyboard will be $40 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $10 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $196,000 and require an immediate investment of $26,000 in net working capital. The corporate tax rate for the company is 35 percent. The appropriate discount rate is 10 percent. What is the NPV of the investment?

Answer 1