Finance mini-case analysis:

A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales:

Year 1 Year 2 Year 3 Year 4 Year 5

50,000 65,400 80,000 68,500 54,500

The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $1,000,000 per year. The medical device has a selling price of $200 per unit and variable production costs are $75. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or abandon it.