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Project I: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $250,000 to install. The firm will use the

Project I: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $250,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $100,000. The project will last 6 years at which time the market value for the equipment will be $30,000. The project will project a product with a sales price of $120.00 per unit and the variable cost per unit will be $65.00. The fixed costs would be $500,000 per year. Because this project is very different to current products sold by the business, management has imposed a 2 percentage point premium above its current WACC as the valuation hurdle it must meet or surpass.

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Year 2014 2015 2016 2017 2018 2019
Forecasted Units Sold 21000 55000 44000 28000 25000 11000
Depreciation Schedule Modified Accelerated Cost Recovery System (MACRS) 5-Year Investment Class Depreciation Schedule 20% 32% 19% 12% 11% 6% Total 100% Ownership Year 4 6

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