Question
4. BMT has developed a new product. It can go into production for an initial investment of $3,000,000. The equipment will be depreciated using straight-line
4. BMT has developed a new product. It can go into production for an initial investment of $3,000,000. The equipment will be depreciated using straight-line depreciation over 4 years to a value of zero. The firm believes that net working capital at each date will equal 40 percent of next years forecast sales. The firm estimates that variable costs are equal to 50% of sales and fixed costs are $800,000 per year. Sales forecasts in dollars are below. The project will come to an end after 4 years, when the product becomes obsolete. The firms tax rate is 35 percent, and the discount rate is 8 percent. Calculate the NPV.
year | 0 | 1 | 2 | 3 | 4 |
sales forecast ($) | 0 | 1,500,000 | 2,800,000 | 3,200,000 | 3,000,000 |
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