Question
A company will sell Thingamabobs to consumers at a price of $101 per unit. The variable costto produceThingamabobs is $26 per unit. The company expects
A company will sell Thingamabobs to consumers at a price of $101 per unit. The variable costto produceThingamabobs is $26 per unit. The company expects to sell 16,000Thingamabobs toconsumers each year. The fixed costs incurred each year will be $230,000. There is an initial investment to produce the goods of $3,500,000 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 10% and the tax rate is 30%. The operating cash flow each year is 744625.
Question: Using the an annual operating cash flow of $744,625, what is the net present value of this investment? Should the company accept or reject this project?
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