NPV Applications

(LO1,2)

We believe we can sell 90,000 home security devices per year at

$150

per piece. They cost

$130

to manufacture (variable cost). Fixed production costs run

$215,000

per year. The necessary equipment costs

$785

h 200 to buy and would be depreciated at a

25%

CCA rate. The equipment would have a zero-salvage value after the five-year life of the project. We need to invest

$140,000

in net working capital up front, no additional net working capital investment is necessary. The discount rate is

19%

, and the tax rate is

35%

. What do you think of the proposal?\ C\ \ \ \

16. NPV Applications (L01,2) We believe we can sell 90,000 home security devices per year at $150 per piece. They cost $130 to manufacture (variable cost). Fixed production costs run $215,000 per year. The necessary equipment costs $785 h 000 to buy and would be depreciated at a 25%CCA rate. The equipment would have a zero-salvage value after the five-year life of the project. We need to invest $140,000 in net working capital up front, no additional net working capital investment is necessary. The discount rate is 19%, and the tax rate is 35%. What do you think of the proposal? 35. Cash Flows and NPV ( L2 ) We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year Unit Sales 193,000