Calculate the payback and the net present value

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Reference no: EM13741448

A manufacturing company is thinking of launching a new product The company expects to sell 950,000 of the new product in the first and 1,500,000 each yr thereafter. Direct costs includes labor and material it will be 45% of sales. Indirect incremental costs are estimated at 950000 a yr. The project requires a new plant that will cost a total of 1,500,000 which will be a depreciated straight line over the next 5 years. the new line will also require an additional netinvestment in inventory and receivables in the amount of 200,000. Assume there is no need for additional investment in building the land for the project. The firms's marginal tax rate is 35% and it's cost of capital is 10%. ( All work is to show formula and calculation used to arrive at financial values) Assignment Guidelines: Prepare a statement showing the incremental cash flows for this project over an 8yr period. Calculate the payback( P/B) and the net present value( NPV) for the project. Then answer the following

1. Do you think the project should be accepted? Why?

2. Assume the company has a P/B policy of not accepting projects with life of over 3 years.

3. If the project required additional investments in land and building, how would this affect your dcision? Explain.

Reference no: EM13741448

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