our company has been doing well, reaching $ 1.13 million in earnings, and is considering launching a new product. Designing the new product has already cost $ 459000. The company estimates that it will sell 835000 units per year for $ 3.07 per unit and variable non-labor costs will be $ 1.06 per unit. Production will end after year 3. New equipment costing $ 1.19 million will be required. The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA. You think the equipment will be obsolete at the end of year 3 and plan to scrap it. Your current level of working capital is $ 296 000. The new product will require the working capital to increase to a level of $ 379000 immediately, then to $ 394000 in year 1, in year 2 the level will be $ 344000, and finally in year 3 the level will return to $ 296000. Your tax rate is 21 %. The discount rate for this project is 9.6 %. Do the capital budgeting analysis for this project and calculate its NPV.

complete the table for year 0,1,2,3

calculate NPV

A Note: Assume that the equipment is put into use in year 1. Sales - Cost of Goods Sold Gross Profit EA EA EA - Depreciation EBIT GA - Tax GA GA Incremental Earnings + Depreciation - Incremental Working Capital - Capital Investment Incremental Free Cash Flow