Financial Management

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QUESTION 2 Latex is considering an investment in a new plasma cutter that use to cut the steel silhouettes. The firm plan to cut the silhouettes in two-dimensional shapes such as outlined of the state, a logo or mascot and sell them through the firm's catalogue sales operations. Latex management estimates that these product can be sold for an average price of $35 per unit, and the company analysts expect that the firm can sell 250,000 unit per year at this price for a period of 5 years. Launching this services require an initial outlay of $1.6 million to purchase the plasma cutter and a materials-handling system that has a residual or salvage value in 5 years of $185,000. In addition, the firm expects to have to invest an additional of working capital through inventories by $140,000, account receivables by $20,000 to support the new business and expects to receive back at the end of project. They also having a payables of $20,000 to be considered. Other pertinent information concerning the business as follows: Based on the provided information above, calculate their Net Present Value (NPV) and their Profitability Index (PI)