Baldwin, a profitable widget maker, has developed an innovative new product called the Turbo-Widget (TW). Baldwin has invested $300,000 in R&D to develop TWs, and expects that TWs will capture a large share of the market. Yes this looks familiar.

Baldwin will have to invest $2 million in new equipment. The machines have a 5-year useful life, with an expected salvage value of $250,000. The machines will require a major overhaul after 3 years, costing $100,000.

Over the five-year product life-cycle, unit sales are expected to be 5,000 units, 8,000 units, 12,000 units, 10,000 units, and 6,000 units. Prices in the first year will be $480, and then will grow 2% annually.

Sales and administrative costs will be $150,000 every year. Production costs will be $500 / unit in the first year, but will decline 8% annually.

Baldwin must maintain approximately 2 weeks inventory of TWs, or 4% (2 / 52) of forecasted annual sales. Inventory can be stored in one of Baldwins existing warehouses. The firm estimates that inventory will require 3,000 square feet and warehouse space costs $80 / s.f. / year.

Customers dont pay immediately. Baldwin expects to have 30days of sales outstanding as accounts receivable. Raw materials must be paid for immediately. The tax rate is 34% and the after-tax cost of capital is 12%.

A) What is the Net Operating Income Before Tax of the 4th year of the project (in thousands)?

B) What is the net nominal value of the Equipment Investment Cashflow over 5 years of the project (ignoring the timing of cashflows)?

C) What is the net present value of the Equipment Investment Cashflow? After-tax cost of capital is 12%.

D) What is the NPV of the project (in thousands)? After-tax cost of capital is 12%