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CFR inc have been considering launching a high tech computer table with very attractive features. The company executives have traveled to different cities to understand
CFR inc have been considering launching a high tech computer table with very attractive features. The company executives have traveled to different cities to understand what the demand of the product will be, and the company has spent $100,000 on those travel expenses. The management think that the product will have a market life of 5 years. The operating revenue is going to be $1million per year and operating costs will be 50% of that. The company will need a new machine costing $500,000, and the CCA rate is 20%. Further, if the project is launched, the company needs to make an investment in the net working capital of $100,000 right away. The net working remain unchanged through-out the life of the project. At the end of life of the project, the company expects to recover 80% of its investment in the net working capital. In addition, a consulting team was appointed to conduct a study regarding the demand potential of the product. The deal with the consulting company is that they will be only paid the consulting fee($50,000) if CFR inc undertakes the project and in that case, the consulting team will be paid at the beginning of the project. The company's tax rate is 30%. It is estimated that at the end of the life of the project, the machine will be sold for $200,000. The required rate of return for the project (WACC) is estimated as 10%. Use an NPV analysis to determine if the company should launch this product
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