Question
Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $995,000, and its economic life
Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $995,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 40,000 keyboards each year. The price of each keyboard will be $30 in the first year and will increase by 5 percent per year. The production cost per keyboard will be $10 in the first year and will increase by 6 percent per year. The project will have an annual fixed cost of $215,000 and require an immediate investment of $45,000 in net working capital. The corporate tax rate for the company is 34 percent. The appropriate discount rate is 13 percent. What is the NPV of the investment?
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