As the finance manager of a company, you are presented with the following project. The company is considering the purchase of a new piece of equipment which would cost $210,000. This equipment will have a five-year useful life and have a salvage value of $10,000 at the end of the five-year period. Assume straight-line depreciation It is estimated that the new equipment will be able to produce 10,000 shelves per year. the allocated overhead for running the equipment will be $20,000 per year. they can sell the shelves for $25 each. the cost of sales is $15 per shelf. Net Working Capital requirements for the project are as follows: Year 0 = $10,000 Year 1 = $15,000 Year 2 = $17,000 Year 3 = $15,000 Year 4 = $10,000 The company has a 30% marginal tax rate and a required rate of return of 15%.

1.What is the NPV for the project?- Need confirmation that NPV is 16,204.

2. The company has a preexisting line ofshelves that sell for $25 per unit with a unit cost of $15. You estimate that sales forthis preexisting line will be 500 units lower each year (not cumulative) as long asthe new line of shelves is in production. What is the new NPV?

Assumptions unit growth price per unit cost of sales per unit Seling, General Admin e pensa irital investment due numbers indicate the assumptions 25 15 20,000 alocated ovalad 210,00C 10,000 useful life Annual Deprecation tax rate discount rate 40,000 Assure straight-line depreciation 30. 15.0% 0 20.000 Year units Bales Cost osales Gross Profit Selling, General Admi Depreciation EBIT Incurre Tax Unlevered Net Income Add Back Depreciation After-tax cash flow from cuipment Sale Subtract Change in NWC Surat Capital Esperditure Free Cash Flow 1 10,000 250.000 150,000 100.000 29,000 40.000 40,000 12.000 28,000 40,000 Z 3 10.000 10,000 10.000 250,000 250.000 250.000 250.000 150.000 150.000 150.000 150.000 100,000 100.000 100.000 100.000 20.000 20,000 20.000 20,000 40,000 40.000 40,000 40,000 40.000 40,000 40.000 40,COU 12,000 12.000 12,000 12.000 28,000 28,000 28.000 29,000 40.000 40,000 40.000 40,000 10,000 12.000 2,000 10,000 (S.CCO! (10,000) (210,000 (220,000) 63,000 GG.000 70,000 73,000 89,000 Discount Factor FOF Present Value NPV 0309565217 0.7562437 0.6575162 0.5717532 0.4971767 (220.000 54,783 49,905 45026 41,718 43,752 16,204 0,30 accept the project 2 17,000 3 15,00 Year Lovel of NWC Chunrein NW Cash Flow Impact of NWC 0 10,000 10,000 (10,000; 1 15.000 5000 5.COM 4 10.000 (10,000 5.000 10,000 2000 12.0001 2,000 State of the economy Recession Normal Boom Probability Stock 0.15 0.55 0.30 0.01 0.09 0.14 Stock (0.25) 015 038 Assumptions unit growth price per unit cost of sales per unit Seling, General Admin e pensa irital investment due numbers indicate the assumptions 25 15 20,000 alocated ovalad 210,00C 10,000 useful life Annual Deprecation tax rate discount rate 40,000 Assure straight-line depreciation 30. 15.0% 0 20.000 Year units Bales Cost osales Gross Profit Selling, General Admi Depreciation EBIT Incurre Tax Unlevered Net Income Add Back Depreciation After-tax cash flow from cuipment Sale Subtract Change in NWC Surat Capital Esperditure Free Cash Flow 1 10,000 250.000 150,000 100.000 29,000 40.000 40,000 12.000 28,000 40,000 Z 3 10.000 10,000 10.000 250,000 250.000 250.000 250.000 150.000 150.000 150.000 150.000 100,000 100.000 100.000 100.000 20.000 20,000 20.000 20,000 40,000 40.000 40,000 40,000 40.000 40,000 40.000 40,COU 12,000 12.000 12,000 12.000 28,000 28,000 28.000 29,000 40.000 40,000 40.000 40,000 10,000 12.000 2,000 10,000 (S.CCO! (10,000) (210,000 (220,000) 63,000 GG.000 70,000 73,000 89,000 Discount Factor FOF Present Value NPV 0309565217 0.7562437 0.6575162 0.5717532 0.4971767 (220.000 54,783 49,905 45026 41,718 43,752 16,204 0,30 accept the project 2 17,000 3 15,00 Year Lovel of NWC Chunrein NW Cash Flow Impact of NWC 0 10,000 10,000 (10,000; 1 15.000 5000 5.COM 4 10.000 (10,000 5.000 10,000 2000 12.0001 2,000 State of the economy Recession Normal Boom Probability Stock 0.15 0.55 0.30 0.01 0.09 0.14 Stock (0.25) 015 038