Jet Skis Galore projects unit sales for a new jet skis as follows: Year Unit Sales 1
Question:
Jet Skis Galore projects unit sales for a new jet skis as follows:
Year Unit Sales
1 250
2 300
3 400
4 600
Total fixed costs are $75,000 per year, variable production costs are $500 per unit, and the units are priced at $1500 each. Production of the jet skis will require $50,000 in NWC to start and additional (changes in) NWC investments each year equal to 10% of the projected sales increase of the following year. The equipment needed to begin production has an installed cost of $400,000, has a four-year life, and has a salvage value of $40,000. Depreciation is straight line to zero. The company is in the 20% tax bracket and has a required return on all its projects of 15%. Based on these preliminary project estimates, what is the (i) NPV; (ii) IRR; (iii) payback period; and (iv) profitability index of the project?
Applied Regression Analysis and Other Multivariable Methods
ISBN: 978-1285051086
5th edition
Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg