Annual cash flows-discounted payback period

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Reference no: EM131054858

A company estimates they will sell 100,000 units (@$10/unit) of a new product starting from year 1 and sales units will grow at 6% for four years until year 5. Fixed costs are $400,000 annually. Variable costs are $5/unit. All sales, variable and fixed costs are cash. The new machinery to manufacture the product will cost $500,000 in year 0 and be depreciated straight line over the next five years. At the end of the project the machinery will be sold for $50,000 (after taxes, also the salvage value) and no new sales will occur. The tax rate is 34%. What are the annual cash flows (year 0 to year 5)? What is the NPV (in year 0) if the project has a 13% required return (OCC)? IRR? Discounted payback period?

Reference no: EM131054858

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