Question

Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $1,700,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 27,000 keyboards each year. The price of each keyboard will be $59 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $26 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $285,000 and require an immediate investment of $250,000 in net working capital. The corporate tax rate for the company is 25 percent. The appropriate discount rate is 9 percent.

  

What is the NPV of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -