The Carson Distribution Corporation, a firm with a 27% tax rate and a 13% required rate of return or discount rate, is considering a new project that involves the introduction of a new product. This project is expected to last 5 years and then because this is somewhat of a fad product, it will be terminated. Given the following Information, determine the net cash flows associated with the project and the project's the NPV, the Pl and the IRR. Apply the appropriate decision criteria and indicate if you believe the project should be accepted. * Cost of new plant and equipment: $11,000,000 Shipping and installation costs: $50,000 (directly related to the new equipment) Unit Sales: 50,000 in year 1, 70,000 in year 2,90,000 in year 3, 65,000 in year 4, 40,000 in year 5. * Sales price per unit: $285/unit in Years 1-4, 5250/unit in Y5 Variable cost per unit: $150/unit The Annual fixed costs starting in Year 1 at $3,000,000 are expected to increase at a rate of 3% annually As of today, Carson Distribution Corporation has incurred a total of $250,000 in market research costs associated with determining the new product's potential demand The introduction of the new product will positively impact the sales of an existing product by the following Additional units sold of existing product 5,000, 7,500, 10,000, 4,000 and 2,000 respectively for years 1-5. Ang unit sales price of additional existing product units - $245 Avg unit variable costs of additional existing product units - $140 There will be $200,000 in costs to be incurred before product launch for Sales team training Working capital requirements: There will be an initial working capital requirement of $1,250,000 to get the project started. For each year, the total investment in net working capital will equal 10% of the dollar value of the incremental sales for that year. Thus, the investment in working capital will increase during Years 1 through 3, then decrease in Year 4. Finally, all working capital will be liquidated at the termination of the project at the end of Year 5. Depreciation Method: Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after five years. The firm would have to borrow $1,000,000 at 6% interest from its local bank resulting in additional interest payments of $60,000 per year. The Carson Distribution Corporation, a firm with a 27% tax rate and a 13% required rate of return or discount rate, is considering a new project that involves the introduction of a new product. This project is expected to last 5 years and then because this is somewhat of a fad product, it will be terminated. Given the following Information, determine the net cash flows associated with the project and the project's the NPV, the Pl and the IRR. Apply the appropriate decision criteria and indicate if you believe the project should be accepted. * Cost of new plant and equipment: $11,000,000 Shipping and installation costs: $50,000 (directly related to the new equipment) Unit Sales: 50,000 in year 1, 70,000 in year 2,90,000 in year 3, 65,000 in year 4, 40,000 in year 5. * Sales price per unit: $285/unit in Years 1-4, 5250/unit in Y5 Variable cost per unit: $150/unit The Annual fixed costs starting in Year 1 at $3,000,000 are expected to increase at a rate of 3% annually As of today, Carson Distribution Corporation has incurred a total of $250,000 in market research costs associated with determining the new product's potential demand The introduction of the new product will positively impact the sales of an existing product by the following Additional units sold of existing product 5,000, 7,500, 10,000, 4,000 and 2,000 respectively for years 1-5. Ang unit sales price of additional existing product units - $245 Avg unit variable costs of additional existing product units - $140 There will be $200,000 in costs to be incurred before product launch for Sales team training Working capital requirements: There will be an initial working capital requirement of $1,250,000 to get the project started. For each year, the total investment in net working capital will equal 10% of the dollar value of the incremental sales for that year. Thus, the investment in working capital will increase during Years 1 through 3, then decrease in Year 4. Finally, all working capital will be liquidated at the termination of the project at the end of Year 5. Depreciation Method: Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after five years. The firm would have to borrow $1,000,000 at 6% interest from its local bank resulting in additional interest payments of $60,000 per year
