Question
Super Manufacturing Inc is considering launching a new product. In order to make the product, the company must purchase a new machine. Consider the following
Super Manufacturing Inc is considering launching a new product. In order to make the product, the company must purchase a new machine. Consider the following data: The company has already spent $175,000 on test marketing for the new product. The machine costs $1 million. The machine will have no salvage value at the end of the project. Taxes are 30%. The project is expected to last 10 years. Sales in year 1 will be 75,000 units. In years 2-10 sales will be 100,000 units. Revenue in year 1 is expected to be $10 per unit. Unit revenue will increase by 3% per year. Production costs are expected to be $6.50 per unit and are expected to increase at 5% per year. Other fixed costs are expected to be $90,000 per year, increasing at 2% per year. (a) Compute the NPV of this project ignoring CCA. Use a discount rate of 10%.
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