The initial investment in a new product is 5.5 million.

A company seeks your advice on whether this product added.

The operating expense: fixed costs of 700,000 years 1-3 and variable cost is expected to be 60% of sales

The project also needs an initial net working capital of 1,400,000 which is recovered completely when the project is sold at the end of the 3rd year.

The revenues from the new project are expected to be 8,000,000 13,000,000 and 12,000,000 in the three years. The revenues from two other product is expected to be lower by 1,100,000 and 500,000 in each year (3 years) on account of the new project.

The company expects to sell off the assets at the end of year 3 for 4,000,000.

Discount rate is 10%. Corporate tax rate is 35%. Capital gains tax rate is 21%. .

Uses MACRs depreciation and assume a life of 5 years. (20.00, 32.00, 19.20, 11.52, 11.52, 5.76 percent)

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