We believe we can sell 90,000 home security devices per year at $150 a piece. They cost

Question:

We believe we can sell 90,000 home security devices per year at $150 a piece. They cost $130 to manufacture (variable cost). Fixed production costs run $215,000 per year. The necessary equipment costs $785,000 to buy and would be depreciated at a 25 percent CCA rate. The equipment would have a zero salvage value after the five-year life of the project. We need to invest $140,000 in net working capital up front; no additional net working capital investment is necessary. The discount rate is 19 percent, and the tax rate is 35 percent. What do you think of the proposal?

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... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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