Reference no: EM133119874

Sabre, Inc. is evaluating a new project to produce 3-D printers. The project will require an immediate investment in fixed assets of $19 million. Economists expect 2 million 3-D printers will be sold in the U.S. by the end of the first year. Executives at Sabre believe they can capture 2.2% of this market in the first year. In Year 1, printers will sell be sold to retailers for $200 each. Costs of goods sold (COGS) are expected to be 48% of sales each year of the project. Fixed costs will be $1 million in the first year, and are expected to increase by 1% per year thereafter. The net working capital needs for each year will be equal to 15% of the revenue generated in the next year.
(Note that all investments in net working capital will be recovered at the end of the project.)

After the first year, the number of units sold is expected to increase by 1% each year, and the unit sale price of printers is expected to increase 2% each year. The project will last 10 years, and the investment in fixed assets will be depreciated on a straight-line basis over this period. The equipment will be scrapped at the end of the project.

This is considered an average-risk project for the firm The firm is financed with 30% debt and 70% equity. The firm's cost of debt is 6%. The firm's equity beta is 1.25. The risk-free rate is 4% and the market risk premium is 7.8%. The corporate tax rate is 35%.

Calculate the project's NPV