Question
A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1
A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
50,000 | 66,400 | 81,200 | 68,500 | 54,500 |
The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or abandon it.
Directions
- complete the Capital Budgeting case. Provide all finaincials for the 5 years useing the Bottom-up approach.
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