(6) You have been hired as a consultant for Mildly Annoying Didgeridoos, Inc. (MAD), manufacturers of a new wind instrument, the doodoo. The demand for doodoos is growing quickly. The company hired a marketing firm to analyze the doodoo market, at a cost of $125,000. An excerpt of the marketing report is as follows: The doodoo industry will have a rapid expansion in the next four years. With the brand name recognition that MAD brings to bear, we feel that the company will be able to sell 6,800, 7,600, 9,200, and 6,300 units each year for the next four years, respectively. Again, capitalizing on the name recognition of MAD, we feel that a premium price of $300 can be charged for each doodoo. Because doodoos appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. MAD feels that fixed costs for the project will be $350,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.1 million and will be depreciated according to a seven-year MACRS schedule. At the end of the project, the equipment can be scrapped for $250,000. Net working capital of $120,000 will be required immediately and additional net working capital investments each year equal to 10 percent of the projected sales increase for the following year. MAD has a 40% tax rate, and the required return on the project is 14 percent. What is the NPV of the project? ($504,546.59)

(6) You have been hired as a consultant for Mildly Annoying Didgeridoos, Inc. (MAD), manufacturers of a new wind instrument, the doodoo. The demand for doodoos is growing quickly. The company hired a marketing firm to analyze the doodoo market, at a cost of $125,000. An excerpt of the marketing report is as follows: The doodoo industry will have a rapid expansion in the next four years. With the brand name recognition that MAD brings to bear, we feet that the company will be able to sell 6,800,7,600,9,200, and 6,300 units each year for the next four years, respectively. Again, capitalizing on the name recognition of MAD, we feel that a premium price of $300 can be charged for each doodoo. Because doodoos appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. MAD feels that fixed costs for the project will be $350,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.1 million and will be depreciated according to a seven-year MACRS schedule. At the end of the project, the equipment can be scrapped for $250,000. Net working capital of $120,000 will be required immediately and additional net working capital investments each year equal to 10 percent of the projected sales increase for the following year. MAD has a 40% tax rate, and the required return on the project is 14 percent. What is the NPV of the project? ($504,546.59)