Practice Problem: Rockland Hard Candy has come up with a new product, the Candy of the Month. Rockland paid $120,000 for a marketing survey to determine the viability of the product. It is felt that Candy of the Month will generate sales of $725,000 per year. The fixed costs associated with this will be $187,000 per year, and variable costs will amount to 20 percent of sales. The equipment necessary for production of the Candy of the Month will cost $835,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. The equipment has a salvage value of $200,000. Rockland Hard Candy will have to invest $100,000 in NWC to begin the project. Rockland Hard Candy is in a 40 percent tax bracket and has a required return of 13 percent. The Payback Cutoff Period is 3 years. Step \#1 Income Statement: Step \#2 OCF: OCF=EBIT+DepreclationTaxesOCF=$ Step \#3 Capital Requirements: Yr. 0 Yr. 1 Yr. 2 Yr