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ABC Co. has recently completed a $200,000, two-year marketing study. Based on the results of the study, Datum has estimated that 5,000 units of its
ABC Co. has recently completed a $200,000, two-year marketing study. Based on the results of the study, Datum has estimated that 5,000 units of its new electro-optical data scanner could be sold annually over the next 5 years, at a price of $5,000 each. Variable costs per unit are $4,000, and fixed costs total $5 million per year. Start-up costs include $15 million to build production facilities, and $4 million in net working capital. The $15 million facility will be depreciated on a straight-line basis to a value of zero over the five-year life of the project. At the end of the projects life, the production facilities will be sold for an estimated $3 million. Finally, start-up would also entail tax-deductible expenses of $75,000 at year zero. Datum is an ongoing, profitable business and pays taxes at a 35% rate on all income and capital gains. Datum has a 20% cost of capital for projects such as this one. Evaluate the project using NPV. ( Each and every step of calculation required.)
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