Calculate the net present value of the venture

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Reference no: EM13290587

The following information pertains to a proposed new six-year venture for a firm:

Pre-startup advertising and marketing expenses $ 80,000
Pre-startup cost of new equipment (assume 5-year SL) $200,000
Investment in market research undertaken last year $100,000
Sales volume in units (years 1 - 3) 50,000
Sales volume in units (years 4 - 6) 60,000
Selling price per unit $ 15
Gross margin on foregone current product sales (years 1 - 6) $ 50,000
Cost to manufacture (per unit) $ 8
Incremental cash expenses (years 1 - 6) $200,000
Corporate tax rate 34%
Corporate cost of capital 14%
Permanent working capital required at outset, to be restored to cash at the end of the project's life $ 50,000

a. Develop the cash flows for the project.
b. Calculate the net present value of the venture.

 

Reference no: EM13290587

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