Calculate OCFs for this project

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Reference no: EM132194309

Question - Project X involves a new type of graphite composition in-line skate wheel. We think we can sell 5,000 units per year at a price of $1,000 each. Variable costs will run about $300 per unit, and the product should have a four-year life.

Fixed costs for the project will run $450,000 per year. Further, we will need to invest a total of $1,250,000 in manufacturing equipment. This equipment will be depreciated straight-line to zero over the project's four-year expected life. In four years, the equipment will be worth about half of what we paid for it. We will have to invest $1,150,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales.

a. Calculate OCFs for this project.

b. What is the project's NPV?

c. Should the project be accepted using NPV?

Reference no: EM132194309

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