question 2

Floyd Inc. has decided to manufacture and sell a new line of high-priced commercial mowers. Annual sales for the new line of mowers is estimated at $900.000 a year for each of the next 20 years. The variable costs are 40% of sales and fixed costs are $200,000 annually. A marketing study that cost $1,000,000 done six months ago revealed that introducing this new line of mowers will result in lost sales of existing products of $30,000 a year. The lost sales have a variable cost of $10,000 a year- The plant and equipment required for producing the new line of mowers costs $2,000,000 (today) and will be depreciated down to zero over 20 years using straight-line depreciation. The plant and equipment is sold for $400.000 at the end of 20 years. Net working capital increases by $100,000 at the beginning of the project (year 0 ) and it is reduced back to its original level in the final year. The tax rate is 20 percent and the discounting rate for the project is 10%. What is the annual EBIT for the new project (new line of high-priced commerclal mowers)