Question
Talk Alot is considering the production of a cell phone.The production facility and equipment will cost $75 million and will be depreciated on a 5-year
Talk Alot is considering the production of a cell phone.The production facility and equipment will cost $75 million and will be depreciated on a 5-year MACRS schedule. The phone will sell for $257, variable costs per car are $86, and fixed costs are $1.4 million per year. The company expects to sell 145,000, 170,000, 215,000, 195,000, and 160,000 each year for the next five years, respectively. The project will require an immediate investment of $2.7 million in NWC, which will be recovered at the end of the project. The tax rate will be 21 percent and the required return is 14 percent. The production facility can be sold for $3.9 million in 5 years, although the company plans to keep the facility for production of another model. What is the NPV and IRR for the new car?
Machine cost | $ 75,000,000 | |||||
Depreciation | 20.00% | 32.00% | 19.20% | 11.52% | 11.52% | |
Price per unit | $ 257 | |||||
Variable cost/unit | $ 86 | |||||
Fixed costs | $ 1,400,000 | |||||
Units sold | 145,000 | 170,000 | 215,000 | 195,000 | 160,000 | |
NWC | $ 2,700,000 | |||||
Facility value in 5 years | $ 3,900,000 | |||||
Tax rate | 21% | |||||
Required return | 14% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started