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RET Inc. currently has two products, low and high priced stoves. RET Inc. has decided to sell a new line of medium-priced stoves. Sales revenues
RET Inc. currently has two products, low and high priced stoves. RET Inc. has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $3,000 a year. Variable costs are 80% of sales. The project is expected to last 10 years. Also, non-variable costs are $400 per year. The company has spent $100 in research and a marketing study that determined the company will have synergy gains/sales of $400 Synergies must be added to Revenues and the respective variable production cost must be taking into account (from quiz). a year from sales of its existing high-priced stoves. The production variable cost of these sales is $200 a year. The plant and equipment required for producing the new line of stoves costs $600 and will be depreciated down to zero over 30 years using straight-line depreciation. It is expected that the plant and equipment can be sold (salvage value) for $200 at the end of 10 years. The new stoves will also require today an increase in net working capital of $100 that will be returned at the end of the project. The tax rate is 25 percent and the cost of capital is 10%. Please show your work. Thank you
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