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Orange Inc., a technology company is considering the feasibility of a new line of selfie toasters which aims at making breakfast a more interesting experience.
Orange Inc., a technology company is considering the feasibility of a new line of selfie toasters which aims at making breakfast a more interesting experience.
Why eat plain old toast when you could make toast with a picture of your face or someone elses face on it This selfie toaster lets you do just that
Based on a market survey, Orange Inc. projects unit sales as follow
Year
Unit sales
The new selfie toaster will sell for $ per unit to start. When competition catches up after three years, however, Orange Inc anticipates that the price will drop to $
The selfie toaster project will require $ in net working capital at the start. Subsequently, total net working capital at the end of each year will about of sales for that year. The variable cost per unit is $ and total fixed costs are $ per year. A product like this typically only has an yearlife.
It will cost about $ to buy the equipment necessary to begin production. This equipment will be depreciated using the straightline method. There is no salvage value. The corporate tax rate is
i The required return in Based on the information, should Orange Inc. proceed with this project? Calculate NPV and IRR
ii Reevaluate the NPV and IRR with the assumption that the variable cost of per unit if the cost is expected to increase by $ per year. What if it decreases by $ per year?
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