Question
Please answer the question below in the format of the picture attached You have been asked to analyze a potential new product--a caulking compound that
Please answer the question below in the format of the picture attached
You have been asked to analyze a potential new product--a caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs (exclusive of depreciation) would be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. (Refer to Appendix 12A for MACRS depreciation rates.) When production ceases after 3 years, the equipment should have a market value of $15,000. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects.
Project Cash Flows (Time Line of Annual Cash Flows) 0 Investment Outlays at Time- Operating Cash Flows over the Project's Life: Units sold Sales price Variable Cost per unit Sales Revenue EBIT (1-D + DEP Terminal Cash Flows at Time 3 Project FCF: EBIT(I-T+DEP -CAPEX-ANOWC b. Calculate the project's NPV, IRR, MIRR, and payback
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