Question

Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $1,600,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 25,000 keyboards each year. The price of each keyboard will be $54 in the first year and will increase by 6 percent per year. The production cost per keyboard will be $24 in the first year and will increase by 3 percent per year. The project will have an annual fixed cost of $275,000 and require an immediate investment of $240,000 in net working capital. The corporate tax rate for the company is 23 percent. The appropriate discount rate is 11 percent. What is the NPV of the investment?

Answer 1