a company plans to introduce a new product shortly. The new machinery required to manufacture the new model costs $20,000,000 and has a useful life of 5 years. The machine will be depreciated during these years as per the straight-line method. The machine will have no scrap value at the end of its life. Market research estimates to sell 10,000 units of the new model at the selling price of $4,200 per unit. Each unit will cost $1,500 to produce. This will also require additional working capital in the beginning of year 1 of $2,000,000 which will be recovered in year 5.

Year 0 1 2 3 4 5 Financials Forecast ($) Sales 42,000,000 42,000,000 42,000,000 42,000,000 42,000,000 Cost of Sales -25,000,000 -25,000,000 25,000,000 -25,000,000 -25,000,000 Gross Profit 17,000,000 17,000,000 17,000,000 17,000,000 17,000,000 Selling Expense -5,000,000 -5,000,000 -5,000,000 5,000,000 -5,000,000 General & Administrative Expenses -5,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000 Depreciation -4,000,000 -4,000,000 -4,000,000 -4,000,000 -4,000,000 Expenses before interest and taxes (EBIT) 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Income tax (30%) -900,000 900,000 -900,000 -900,000 -900,000 Net Income 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000