Question
Epsilon Products, Inc., (EPI) projects unit sales for a new device as follows: Year Unit Sales 1 87,500 2 105,000 3 119,000 4 108,000 5
Epsilon Products, Inc., (EPI) projects unit sales for a new device as follows: Year Unit Sales 1 87,500
2 105,000
3 119,000
4 108,000
5 92,000 ________________________________________
Production of the device will require $1,000,000 in net working capital to start and additional net working capital investments each year equal to 9 percent of the projected sales increase for the following year. Total fixed costs are $1,450,000 per year, variable production costs are $250 per unit, and the units are priced at $350 each. The equipment needed to begin production has an installed cost of $24,000,000. This equipment qualifies as seven-year MACRS property, and the accounting department supplies you with the following depreciation figures: Year MACRS Depreciation
1 3,429,600
2 5,877,600
3 4,197,600
4 2,997,600
5 2,143,200 ________________________________________
In five years, this equipment can be sold for about 15 percent of its acquisition cost, and will have a book value of $5,354,400. EPI is in the 35 percent marginal tax bracket and has a required return on all its projects of 16 percent. Determine the Payback Period, Internal Rate of Return and Net Present Value of this project.
Please answer with supporting excel formulas
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