Hoosier Technology, Inc. is a producer of printers. Its current line of printers are selling excellently. However, in order to cope with the foreseeable competition with other similar printers, HT spent $5,900,000 to develop a new line of wifi portable color printers (new model development cost). This new printer model enables users to do printing wherever they need it. Users can do their print jobs wirelessly from their laptop or mobile devices such as smartphone or tablet, using the free HT ePrint app without building a network in advance. The new printer has a 2-inch display and can print in two different modes of capacity - the standard input capacity and the maximum (two and a half times as much as standard) input capacity, for cards, sheets, transparencies, photo paper and labels. As this durable and compact printer can be fitted in car or backpack, it adds convenience to printing anywhere. Users can fully charge the printer from home, in their car or office by plugging it in their AC power source for 30 minutes while turning the printer off. The company had also spent a further $1,300,000 to study the marketability of this new line of wifi portable color printers (marketability studying cost). HT is able to produce the new printers at a variable cost of $70 each. The total fixed costs for the operation are expected to be $9,000,000 per year. HT expects to sell 3,200,000 printers, 3,800,000 printers, 2,500,000 printers, 1,400,000 printers and 1,000,000 printers of the new model per year over the next five years respectively. The new printers will be selling at a price of $120 each. To launch this new line of production, HT needs to invest $32,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $4,200,000 as at the end of the 5 year project life. HT is planning to stop producing the existing printers entirely in two years. Should HT not introduce the new printers, sales per year of the existing printers will be 1,800,000 printers and 1,300,000 printers for the next two years respectively. The existing model can be produced at variable costs of $50 each and total fixed costs of $7,500,000 per year. The existing printers are selling for $100 each. If HT produces the new model, sales of existing model will be eroded by 1,080,000 printers for next year and 1,105,000 printers for the year after next. In addition, to promote sales of the existing model alongside with the new model, HT has to reduce the price of the existing model to $75 each. Net working capital for this new wifi portable color printer project will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there will be no initial NWC required. The first change in NWC is expected to occur in year 1 according to the sales of the year. HT is currently in the tax bracket of 35 percent and it requires a 20 percent returns on all of its projects. The firm also requires a payback of 4 years for all projects. Evaluation of Project: Fill out the following tables. Year 0 1 2 3 4 5 Cash flow $ $ $ $ $ $ (Do not round your calculations. Round your answers below to the number of decimal places specified.) Evaluation Method Payback PI (Profitability Index) IRR (Internal Rate of Return) NPV (Net Present Value) years (2 decimal places) (2 decimal places) % (2 decimal places) (whole number with no decimal place) $ (Enter "999" for Payback if the project will not payback. The "999" you provided does not mean that the project takes 999 years to payback. It is just that you tell the system that the project will not payback.)
