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A new product line is proposed to the investment committee. It has the following estimates for the 5 years of this project. Sales Price =
A new product line is proposed to the investment committee. It has the following estimates for the 5 years of this project. | |||||
Sales Price = $300 per unit, increasing by 9% per year starting in year 2 | |||||
Units sold= | 75,000 units, increasing by 20%, 40%,, 20%, and 10% for years 2 through 5. | ||||
Variable cost = $110 per unit, increasing by 5% per year starting in year 2 | |||||
fixed costs = $400,000 increasing at 5% for years 2 through 5 | capital cost = $800,000, all upfront | ||||
Salvage value = $200,000, | depreciation - straight line, 5 years, no salvage value | ||||
Required return on this project = | 15% | net working capital required = 12% of next year's dollar sales | |||
Is this project acceptable from a financial return standpoint? | income tax rate = | 40% |
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