QUESTION $17$

$15$ points

Firm X builds a low$-$cost product. Due to overseas competition, the firm is going to expand its line of products and introduce a new premium line. Below are the details of the investment.

Cost of new equipment: $$90,000$

Installation cost of equipment: $$40,000$

Life of equipment: $5$ years, Straight line depreciation

Expected sales: $$170,000$ per year

Expected reduction in sales generic product as customers shift to the new line: $$10,000$ per year

Raw material cost: $$90,000$ per year

New worker salary: $$20,000$ per year

Required Net working capital over the life of the project: $$20,000$

Expected Salvage value of equipment at the end of $5$ year: $$30,000$

Tax rate: $35\%.$

Assuming a WACC of $13\%,$ what is this project's NPV$?$

a$.-5,068$

b$.6,610$

c$.12,703$

d$.17,756$

e$.25,294$

QUESTION $18$

$10$ points

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