Acme Inc. is launching a new and improved widget, Widget3XM. Having spent $100,000 to develop the new Widget, Acme is now ready to consider launching production and sales. New equipment necessary to produce the revolutionary widget costs $7,000,000 fully installed and is expected to have $1,000,000 salvage value in 3 years. It will be depreciated on a straight-line basis ($2,000,000/yr). The company expects to sell 1,000,000 units at a price of $5.00 per unit. Variable cash costs of producing the widget are expected to be $1.00 per unit. The widget is expected to be replaced by a newer Widget4XM after 3 years. Production and sales of the widget will require the following net working capital balances:

a.

Time:	0	1	2	3
Inventory	400,000	500,000	500,000	0
A/R		450,000	450,000	0
A/P	200,000	250,000	250,000	0
NWC
DNWC

b. The company faces a 30% tax rate and based on the risk its cost of capital is estimated to be 11%. Should the company launch the new Widget3XM?