The U.S. Mint is considering replacing Kennedy on the 50-cent piece. This will be a limited run, only lasting three years. The mint will incur considerable upfront costs of new engraving and stamping equipment. It will cost $300,000 for the contract engravers to produce the masters for the new coin. The masters will have no value at the end of the project. The purchase price of the new stamping equipment will be $70,000. This equipment will follow straight line depreciation over 3-year life of the project and then sold at the estimated salvage value of $40,000. They will also pay $15,000 to train the new operator to operate the new machine at year 0.

They will use some existing equipment which had a book value of $100,000 but which could have been sold to the new Iraq mint for $200,000. The existing equipment will depreciate to zero using straight line and has no salvage value at the end of the project. It costs the mint $0.10 to produce each 50-cent piece. They believe that the new design will attract the attention of a lot of collectors who will buy 800,000 additional coins (for $0.50 a piece) from the mint each year than they otherwise would have. This belief is bolstered by a $250,000 marketing survey just completed. Finally, in addition to the existing working capital of $10,000, the Mint will incur additional working capital in the amount of $20,000 immediately. There will be no change in the working capital until year 3, at which point, it will go back to $10,000.

This new project is categorized as high-risk project. The average WACC of U.S. Mint is 8% and the company employs the subjective approach with an adjustment factor of 2%. The tax rate is 21%.

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