THE DROP-DOWN CHOICES ARE: VARIABLE / FIXED / SUNK

Your company has been doing well, reaching $1.01 million in earnings, and is considering launching a new product. Designing the new product has already cost $454,000. The company estimates that it will sell 831,000 units per year for $2.91 per unit and variable non-labor costs will be $1.18 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3 . Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $376,000 immediately, then to $391,000 in year 1 , in year 2 the level will be $351,000, and finally in year 3 the level will return to $302,000. Your tax rate is 21%. The discount rate for this project is 9.9%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1. Design already happened and is (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be $. (Round to the nearest dollar.) Depreciation in year 2 will be $. (Round to the nearest dollar.) Depreciation in year 3 will be $. (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) The NPV of the project is $. (Round to the nearest dollar.)