Analyze this project and give your recommendation

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Reference no: EM133909288

Problem

A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales:

Year 1	Year 2	Year 3	Year 4	Year 5
50,000	66,400	81,200	68,500	54,500

The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. Get the instant assignment help. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or abandon it.

Reference no: EM133909288

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