Question
A product line can sell 100,000 products per year for 4 years (after which time this project is expected to shut down). The product will
A product line can sell 100,000 products per year for 4 years (after which time this project is expected to shut down). The product will sell for $5 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $335,000 initial expenditure associated with the purchase of new production equipment. It assumed that this initial expenditure will be depreciated using the SL method over 4 years. The before-tax salve is $25,000. This project will also require a one-time initial investment of $31,000 in net working capital associated with inventory. The required rate of return is 10%. Tax rate is 21%. What is the NPV?
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