1. Given the growing popularity of environmentally friendly clothing, two recent MBA graduates decided to broaden...

1. Given the growing popularity of environmentally friendly clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “green lifestyle for the home.” With limited capital, they decided to focus on environmentally friendly curtains to accent people’s homes. They projected unit sales of these curtains to be 5,000 per year. Production of these curtains will require $28,000 in net working capital to start. Variable production costs are $20 per unit, and the units are priced at $45 each. The equipment needed to begin production will cost $60,000. The equipment will be depreciated to zero using the straight-line method over a five-year life and is expected to have a salvage value of $5,000. The production will take place in an old warehouse that one of the graduates has inherited. He could have gotten it rented for $100,000 a year. The effective tax rate is 34%, and the required rate of return is 12%. (a) Compute the Payback period, NPV and IRR for this project. (b) How many curtains do you need to sell in order to make this project worthwhile?

Solutions

Expert Solution

Based on the given data, pls find below workings and answers:

To make this project viable, they need to sell minimum 5205 (5204.14) curtains per annum.

jeff jeffy answered 1 year ago

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