Considering launching a new product

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Your company has been doing? well, reaching $1.18 million in? earnings, and is considering launching a new product. Designing the new product has already cost $508,000. The company estimates that it will sell 760,000 units per year for $3.05 per unit and variable? non-labor costs will be $1.17 per unit. Production will end after year 3. New equipment costing $1.19 million will be required. The equipment will be depreciated to zero using the? 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $300,000. The new product will require the working capital to increase to a level of $380,000 ?immediately, then to $396,000 in year? 1, $347,000 in year? 2, and finally return to $300,000. Your tax rate is 35%. The discount rate for this project is 10.2%. Do the capital budgeting analysis for this project and calculate its NPV.

Reference no: EM131511597

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