The marketing department of your firm is contemplating the introduction of a new product. To manufacture the product, you must puchase machinery today at a cost of 11,500. The costs of delivery and installatin will be $500. You will depreciate the fixed asset using straight line depreciation (assuming a 3-year life and no salvage value). You must also immediately invest $1000 of cash to purchase additional inventory to support the introduction of the new product.

In the first year, you anticipate sales of 1000 units. The selling price today is $25 per unit. You estimate the units sold will increase by 7% in years two and three. Today, your variable cost per unit is $15 and fixed costs will be $5,000. At the end of year three, you expect to sell the used machinery for $1500 and fully recover any working capital.

By examining industry averages of firms tha tproduce this product, you expect that your accounts receivable turnover will be 12, inventory turnover will be 8 and accounts payable turnover will be 9.

Expected inflation is 4% per year. The project's required return is 12% and the tax rate is 21%.

Show whether you should introduce the new product.