Question
A company will sell Gizmos to consumers at a price of $116 per unit. The variable cost to produce Gizmos is $49 per unit. The
A company will sell Gizmos to consumers at a price of $116 per unit. The variable cost to produce Gizmos is $49 per unit. The company expects to sell 16,000 Gizmos to consumers each year. The fixed costs incurred each year will be $180,000. There is an initial investment to produce the goods of $3,200,000 which will be depreciated straight line over the 5 year life of the investment to a salvage value of $0. The opportunity cost of capital is 9% and the tax rate is 40%.
What is operating cash flow each year? Answer: 791,200
Answer this: Using the annual operating cash flow of $791,200, what is the net present value of this investment?
Should the company accept or reject this project? Accept or Reject
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