Capital Budgeting Problem Kraemer Company is launching a new product. The following information relates to the launch: 1) 4 year project life 8) Sales for first year 2) New equipment cost 9) Sales increase per year 3) Equipment ship & Install cost 10) Operating cost: $ (200,000) $ (35,000) 4) Related start up cost $ 5) Inventory increase (one time) $ 6) Accounts Payable increase (one time) $ 7) Equip. salvage value after tax $ Cash Flow Framework: Year Investments: Total Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back-Depreciation Total Terminal: Total Cash Flows NPV = (5,000) 25,000 5,000 15,000 0 IRR = as a percent of sales 11) Depreciation expense (per year) 12) Tax rate 13) WACC Payback= Should Kraemer launch the new product? Why? How would you explain to your CEO (in business terms) what NPV means? Are you sure your NPV calculation 100% correct? What else should you do to help the analysis? How is the business risk accounted for in this project? 2/12/21 $ 200,000 5% $ $ (120,000) -60% (60,000) -21% 10%