Assigment 4-

You must analyze a ne w product called Christans Magic Caulking Compound. The people in the R&D department developed this new product for residential construction use. Christans marketing manager thinks the company can sell 115,000 tubes per year for each of the next three years at a price of $3.25 each; after this time the product will become obsolete. The required equipment will cost $150,000, plus another $25,000 for shipping and installation. Current Assets (receivables and inventories) are expected to increase by $35,000, while current liabilities (accounts payable and accruals) will increase by $15,000 over the same period. Variable Costs are expected to be 60% of sales revenues, fixed costs (exclusive of depreciation) will be $70,000 per year, and fixed assets will be depreciated under MACRS with a 3 year life (see table 11-1 pg 319). When production ceases in 3 years, the equipment is expected to have a salvage value of $15,000. The corporate tax rate is 40% and the company uses a rate of 10%.

Determine the following

Initial Cost Investment and the subsequent cash annual cash flows generated by the project?

Calculate the Projects NPV?

Calculate the Projects IRR?

Calculate the Projects MIRR?

Calculate the Projects Payback Period?