7.7 Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of
Question:
7.7 Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $400,000 and its economic life five years. The machine will be fully depreciated by the straight-line method. The machine will produce 10,000 units of keyboards each year. The price of the keyboard will be $40 in the first year, and it will increase at 5 percent per year. The production cost per unit of the keyboard will be $20 in the first year, and it will increase at 10 percent per year. The corporate tax rate for the company is 34 percent. If the appropriate discount rate is 15 percent, what is the NPV of the investment?
Step by Step Answer:
Corporate Finance
ISBN: 9780071229036
6th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe