Question
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the projects five-year life. At the end of the project life, the installed machine can be scrapped and sold for $28,797. The machine will add $185,000 per year as sales and incur an additional $55,000, but will decrease $6,794 from the existing product line's sales. The system requires an initial investment in net working capital of $38,405. The NWC level will be maintained throughout the project years and recoverable at the end of the project. Assume the cost of capital is 6.5%, and Gamma Inc. belongs to the 35% tax bracket. Compute the NPV of the project and determine whether you will invest in this project. Round your answer to two decimal places.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started