Reference no: EM131972801

A firm is thinking about launching a new product. The initial investment in equipment and other set-up is $400,000. It has been a while since the top management has been thinking about launching this new product. They made several trips to different cities to understand the potential demand, and finally decided to launch this product. Those trips have cost the company about $90,000 so far. The project will have an estimated life of 5 years. The year 1 revenue is expected to be $350,000, and the revenue is expected to grow at a rate of 6% per year. Given management's amazing negotiation skills with the suppliers, the operating costs of the project is estimated to be $200,000 per year. If the project is undertaken, the total investment in net working capital will increase by $50,000 initially, but only 50% will recovered at the end of 5th year. The tax rate is 30%, and the CCA rate for depreciation purposes is 20%. The equipment can be sold at the end of the project for $40,000. The discount rate appropriate for the project is 8%. Use a NPV analysis to decide if the company should undertake this project.