Shimano Company has an opportunity to manufacture and sell one of two new products for a five year period The companys tax rate is 30 and its after tax cost of capital is 14 The cost and revenue estimates for each product are as follows The equipment pertaining to both products has a useful life of...

1 The net present value of the Product A is computed as follows Now 1 2 3 4 5 Annual tax expense Sales 370000 370000 370000 370000 370000 Operating ex ...

Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year

Question:

Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The company€™s tax rate is 30% and its after-tax is 14%. The cost and revenue estimates for each product are as follows:

The equipment pertaining to both products has a useful life of five years and no salvage value. The company uses the straight-line depreciation method for financial reporting and tax purposes. At the end of five years, each product€™s working capital will be released for investment elsewhere within the company.

Required:
1. What is the net present value of each investment opportunity?
2. Which of the two products should the company pursue?Why?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...