Question
WagDream Inc has designed a new tough toy for dogs called the Toughie, which is stronger than any other toy on the market. The company
WagDream Inc has designed a new tough toy for dogs called the Toughie, which is stronger than any other toy on the market. The company has conducted an extensive market study, costing them $5,000 more than intially planned (i.e. $15,000). The study revealed the following market projections:
Revenue resulting from the new product is expected to be $ 325,000 per year and yearly costs to be $ 80,000. The revenue from other products of the company are expected to go up by $20,000/yr, as customers become familiar with the quality of the products. The new product is expected to sell for 6 years, and both the revenues and costs are expected to remain constant.
The additional machinery to produce the product will cost $1,020,000 and ATO rules require that the machinery be depreciated to zero over 10 years. At the end of 6 years, the company expects to be able to sell the machinery for $ 120,000. The project will also require an initial working capital of $10,000, which will be recovered at the end of the project.
Assuming a tax rate of 30% and a required return of 9% p.a., what is the expected NPV? Round your answer to two decimals.
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