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Gillette had developed a new razor. The company was evaluating introducing the new product and had developed the following projections. Starting from year 6, Revenue,

Gillette had developed a new razor. The company was evaluating introducing the new product and had developed the following projections. Starting from year 6, Revenue, COGS, Op. Expenses will be the same as year 5, and go on forever. The project involves a $10,000,000 investment for a machine (in year 0) that is depreciated on a straight-line basis for 4 years (year 1 to year 4) to a salvage value of zero. The production will require a $2,000,000 initial (year 0) investment in net working capital. Only half of the working capital will be recovered in year 4. Calculate the NPV of the Gillette New Razor Project with a 15% OCC and 35% tax rate.

Year

0

1

2

3

4

5

6+

Revenue

$10,000,000

$15,000,000

$20,000,000

$21,000,000

$22,050,000

same as yr 5

COGS

$5,000,000

$7,500,000

$10,000,000

$10,500,000

$11,025,000

same as yr 5

Op. Expenses

$2,000,000

$2,500,000

$3,000,000

$3,150,000

$3,307,500

same as yr 5

$946,228
$14,240,253
$20,067,086

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