Evaluating a project for the ultimate

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You are evaluating a project for ‘The Ultimate’ recreational tennis racket, guaranteed to correct a wimpy backhand. You estimate the sales price of ‘The Ultimate’ to be $200 and sales volume to be 1,500 units the 1st year, 2,250 units the 2nd year and 3,500 units in year 3. The project has a 3-year life. Variable costs amount to $125 per unit and fixed costs are $80,000 per year. The project requires $100,000 of equipment that is depreciated using the 5-year MACRS schedule. The actual market value of the equipment at the end of year 3 is $45,000. Initial net working capital investment is $40,000 and NWC will maintain a level equal to 25% of sales during the first two years of the project. There is no increase in year 3 of the project. The tax rate is 34% and the required return on the project is 10%.

What is the NPV of this project? (Show procedure)

Reference no: EM13921078

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