Equipment Pretax salvage value R&D Marketing study $ $ $ $ 43,500,000 6,500,000 750,000 200,000 Year 3 125,000 Year 4 95,000 Year 5 75,000 Sales (units) Sales of old PDA (units) Lost sales (units) Depreciation rate Year 1 155,000 95,000 30,000 14.29% Year 2 165,000 65,000 30,000 24.49% 17.49% 12.49% 8.93% 535 Price vc FC Price of old PDA Price reduction of old PDA VC of old PDA Tax rate NWC (% of sales) Required return $ $ $ $ $ 220 6,400,000 385 215 145 21% 20% 12% Year 1 Year 2 Year 3 Year 4 Year 5 Sales New Lost sales Lost revenue Net sales VC New Lost sales Total VC Sales VC Fixed costs Dep EBT Tax NI +Dep OCF NWC Beg End NWC CF Net CF Salvage BV of equipment Taxes Salvage CF Cash flow Time 0 1 2 3 4 5 Profitability index IRR NPV . Minimum price . Maximum VC Equipment Pretax salvage value R&D Marketing study $ $ $ $ 43,500,000 6,500,000 750,000 200,000 Year 3 125,000 Year 4 95,000 Year 5 75,000 Sales (units) Sales of old PDA (units) Lost sales (units) Depreciation rate Year 1 155,000 95,000 30,000 14.29% Year 2 165,000 65,000 30,000 24.49% 17.49% 12.49% 8.93% 535 Price vc FC Price of old PDA Price reduction of old PDA VC of old PDA Tax rate NWC (% of sales) Required return $ $ $ $ $ 220 6,400,000 385 215 145 21% 20% 12% Year 1 Year 2 Year 3 Year 4 Year 5 Sales New Lost sales Lost revenue Net sales VC New Lost sales Total VC Sales VC Fixed costs Dep EBT Tax NI +Dep OCF NWC Beg End NWC CF Net CF Salvage BV of equipment Taxes Salvage CF Cash flow Time 0 1 2 3 4 5 Profitability index IRR NPV . Minimum price . Maximum VC