RDH, Inc., manufactures high quality ladies boots. The company is considering the launch of a new boot style. The company believes that it would sell 47, 000, 45, 000, 41,000, and 36,000 pairs per year over the next four years, respectively. The new boots would sell for $345, with variable costs of $153 per pair. Fixed production costs are $3.75 million per year and the equipment necessary for the new line costs $8.5 million. The equipment will be depreciated on a 5-year MACRS schedule. The line would require an initial investment in NWC of $2.5 million, which would be returned at the end of the project. The tax rate is 40 percent, and the required return is 9 percent. The company expects that because of changes in styles, the new design can only be sold for the next four years. In four years, the equipment can be sold for $2.2 million, although the company believes it will keep the machinery for another product line. What is the NPV and IRR of the new pair of boots?

Units sold per year		47,000	45,000	41,000	36,000
Price per pair	$ 345
VC per unit	$ 153
Fixed costs	$ 3,750,000
Equipment	$ 8,500,000
Depreciation		20.00%	32.00%	19.20%	11.52%
Salvage value	$ 2,200,000
NWC	$ 2,500,000
Tax rate	40%
Required return	9%

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