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Uptown Junk (UJ), Inc., projects unit sales for a new storage facility on Mars to be: 4 Year Unit Sales 1 85,000 2 95,000 3
Uptown Junk (UJ), Inc., projects unit sales for a new storage facility on Mars to be: 4 Year Unit Sales 1 85,000 2 95,000 3 105,000 5 85,000 100,000 Production of the facility will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 15% of the projected sales increase for the following year. Total fixed costs are $900,000 per year, variable production costs are $260 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25,000,000. This equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 25% of its acquisition cost. UJ is in the 35% marginal tax bracket and has a required return on all its projects of 20%. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? MIRR? Payback Period
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