A company is going planning to install an extra production line sine demand has risen considerably and apparently stable. The production line costs $ 1,000,000 and will last for 4 years, then it will be worthless. The depreciation method used is the 150% DB method. The number of units produced and sold is expected to be 50,000 in the first year. Each year after, the level will rise with 5,000 units. The sales price per unit is $ 20 in the first year. The variable costs are expected to be $ 7.50 per unit in the first year.

The general price inflation is 15%, but the sales price and variable costs rise at different rates: the price escalation rate of the sales price is 17%, while the price escalation rate on the variable costs is 10%. The after-tax MARR is 20% per year (annual nominal, compounded annually), the corporate taxes 30%.

1. Calculate the before tax cash flows.
2. Calculate the after tax cash flows.

Evaluate the project with the NPV-method. Anw. / $901,657.91