Capital Budgeting Problem Kraemer Company is launching a new product. The following information relates to the launch: 2/12/21 1) 4 year project life 8) Sales for first year 2) New equipment cost -200,000 9) Sales increase per year 200,000 5% 3) Equipment ship & install cost 4) Related start up cost -35,000 -5,000 10) Operating cost: -120,000 as a percent of sales -60% 5) Inventory increase (one time) 25,000 11) Depreciation expense (per year) -60,000 6) Accounts Payable increase (one time) 7) Equip. salvage value after tax 5,000 12) Tax rate -21% 15,000 13) WACC 10% Cash Flow Framework: Year Investments: Total Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back- Depreciation Total Terminal: Total Cash Flows NPV= IRR = 0 1 2 3 4 0 0 0 0 0 Payback= Should Kraemer launch the new product? Why? How would you explain to your CEO (in business terms) what NPV means? Are you sure your NPV calculation 100% correct? What else should you do to help the analysis? How is the business risk accounted for in this project?