Answered step by step
Verified Expert Solution
Question
1 Approved Answer
3. (23 points) Stancill Instruments, Inc. plans to introduce a new product in the market. The cost of the machines to produce these goods is
3. (23 points) Stancill Instruments, Inc. plans to introduce a new product in the market. The cost of the machines to produce these goods is $ 1,500,000. The firm expects that these machines will be sold for $ 300,000 at the end of the fourth year. These machines will be depreciated straight-line to zero book value over its four-year life. Sales are projected to be 1,000 units per year; price per unit will be $5,000; variable cost per unit (i.e., average variable cost) will be $3,000; and fixed costs are estimated to be $ 1 million per year. This project also requires an initial investment in net working capital (NWC) of $ 500,000. The required rate of return (i.e., cost of capital) on the project is 9 % and the relevant tax rate is 35%. What are the NPV and IRR of the project? Should Stancill accept or reject the project? Please show your work
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started