Question
company will sell Thingamajigs to consumers at a price of $92 per unit. The variable cost to produce Thingamajigs is $28 per unit. The company
company will sell Thingamajigs to consumers at a price of $92 per unit. The variable cost to produce Thingamajigs is $28 per unit. The company expects to sell 10,000 Thingamajigs to consumers each year. The fixed costs incurred each year will be $210,000. There is an initial investment to produce the goods of $2,500,000 which will be depreciated straight line over the 20 year life of the investment to a salvage value of $0. The opportunity cost of capital is 7% and the tax rate is 29%.
What is operating cash flow each year?
Using the annual operating cash flow of above, what is the net present value of this investment?
Should the company accept or reject this project?
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