Question
A company will sell Gizmos to consumers at a price of $97 per unit. The variable costto produceGizmos is $49 per unit. The company expects
A company will sell Gizmos to consumers at a price of $97 per unit. The variable costto produceGizmos is $49 per unit. The company expects to sell 19,000Gizmos toconsumers each year. The fixed costs incurred each year will be $150,000. There is an initial investment to produce the goods of $3,700,000 which will be depreciated straight line over the 16 year life of the investmentto a salvage value of $0. The opportunity cost of capital is 5% and the tax rate is 34%.
a) Using the an annual operating cash flow of $581,545, what is the net present value of this investment?
b) Should the company accept or reject this project?
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