Problem $1$

Cost of new plant and equipment:

Shipping and installation cost:

Unit Sales:

Unit Sales:

Year

$1$

$2$

$3$

$4$

$5$

$5$

$5,700,000$

$$\frac{800}{?}$ unit in years $1-4,$$$600/$ unit in year $5$

$$\frac{400}{?}$ unit

$$10,000,000$

Sales price per unit:

Variable cost per unit:

Annual fixed costs:

Working Capital Requirement: There will be an initial working capital requirement of $$2,000,000$ just to get production started. Then, for each year, the total investment in NWC will be equal to $10\%$ of the dollar value of sales for that year. Thus, the investment in working capital will increase during years $1$ through $3,$ then decrease in year $4.$ Finally, all working capital is liquidated at the termination of the project at the end of year $5.$

The Depretiation Method; We used the simplified straight$-$line method over $5$ years. It is assumed that the plant and equipment will have no salvage value after $5$ years. Thus annual depreciation is $$200,000,\frac{000}{?}$ year for $5$ years.

Tax: $34\%$ and Required return: $25\%$

$$198,000,000$

$$2,000,000$

Unit sold

$1,000,000$

$1,800,000$

$1,800,000$

$1,200,000$

$700,000$

$$198,000,000$

Unit sold

$1,000,000$

$1,800,000$

$1,800,000$

$1,200,000$

$1-4,$$$\frac{600}{?}$ unit in year $5q,$

$q,$ are