Evergreen company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below table, and they project price per unit to be $120 per unit at the beginning. And when competition catches up after 3 years (in the 4th year), they anticipate that the price would drop to $110. This project requires $20,000 in net working capital at the beginning. Subsequently, total net working capital at the end of each year would be about 15% of total sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year. It costs about $800,000 to buy the equipment necessary to begin production. This investment is primarily in industrial equipment and falls in Class 8 with a CCA rate of 20%. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40%, and the required return is 15%.

Year Unit Sales

1 3000

2 5000

3 6000

4 6,500

5 6000

6 5000

7 4000

8 3000

Based on the above information: 1) Assuming that the asset class is closed calculate: a) NPV b) IRR c)

Should Evergreen company proceed with the project? 2) Assuming that the asset class will remain open calculate:

a) NPV b) IRR

c) Should Evergreen company proceed with the project?