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Lawson Company is considering production of an electronic tablet with the following associated data: Expected annual revenues, $1,500,000 A projected product life cycle of five
Lawson Company is considering production of an electronic tablet with the following associated data:
- Expected annual revenues, $1,500,000
- A projected product life cycle of five years
- Equipment, $1,600,000 with a salvage value of $200,000 after five years
- Expected increase in working capital, $200,000 (recoverable at the end of five years)
- Annual cash operating expenses are estimated at $900,000.
- The required rate of return is 12 percent.
1. Estimate the annual cash flows for the tablet project by completing the following table. Enter amounts that represent cash outflows as negative numbers.
Year | Item | Cash Flow | |
0 | Equipment | $ | |
Working capital | |||
Total | $ | ||
14 | Revenues | $ | |
Operating expenses | |||
Total | $ | ||
5 | Revenues | $ | |
Operating expenses | |||
Salvage | |||
Recovery of working capital | |||
Total | $ |
2. Using the estimated cash flows, calculate the NPV (round the discount factor to three decimal places and the present values to the nearest dollar):
NPV = $
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