Question
Under a special licensing arrangement, Swinyard Company has an opportunity tomarket a new product for a 5 year period. The product would be purchased from
Under a special licensing arrangement, Swinyard Company has an opportunity tomarket a new product for a 5 year period. The product would be purchased from themanufacturer and Swinyard would be responsible for promotion and distribution costs.
cost of equipment needed $60,000
working capital needed (released atthe end of the project) $100,000 overhaul of equipment in year 4 $5,000
salvage value of equipment at theend of 5 years$10,000
annual revenues and costs
sales revenues $200,000
cost of goods sold $125,000
other operating costs $35,000
At the end of the 5 year period, the working capital would be released forinvestment elsewhere. Swinyard uses a 12% discount rate. Ignore taxes anddepreciation.Calculate the NPV of the investment. Please show your calculations.Should Swinyard proceed with the investment based on your analysis?
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