Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
1. Evergreen company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below
1. Evergreen company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below table, and they project price per unit to be $120 per unit at the beginning. And when competition catches up after 3 years (in the 4th year). they anticipate that the price would drop to $110. This project requires $20,000 in net working capital at the beginning. Subsequently, total net working capital at the end of each year would be about 15% of total sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year. It costs about $900,000 to buy the equipment necessary to begin production. This investment is primarily in industrial equipment and falls in Class 8 with a CCA rate of 20%. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40%, and the required return is 15%. 5000 Years Unit Sales 1 3000 2 3 6000 4 6,500 5 6000 6 5000 7 4000 8 3000 6. Based on your previous answers, should Evergreen go ahead with the project (assuming the asset class will remain open)? Explain. (2 points) Yes No Indifferent
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/07/6683281971b45_5136683281912573.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/07/66832819eaf67_513668328199e574.jpg)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started