Question
North Coast Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. The equipment to be used would be depreciated
North Coast Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. The equipment to be used would be depreciated by straight line over its 3-year life and would have a salvage value $12,000, and $10,000 in new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other products and reduce their pre-tax annual cash flows. What is the project's NPV and IRR? Should the company accept or reject the project and why?
Please use Excel to solve
| Cost of capital | 10.0% |
| Pre-tax cash flow reduction for other products | $5,000 |
| Investment cost | $80,000 |
| Sales revenues, each year for 3 years | $67,500 |
| Annual operating costs (excl. deprec.) | $25,000 |
| Tax rate | 21.0% |
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