Question
You are looking into the viability of a new product line for The Thinking Group, a new line of dry-erase boards. Use the following
\ You are looking into the viability of a new product line for The Thinking Group, a new line of dry-erase boards. Use the following information to answer the questions below. 10 Points Projected Sales Year Unit Sales 1 4250 2 6100 3 8250 4 5200 5 3900 6 2999 Up to now, The Thinking Group has incurred a cost of $1,880,000 on marketing research as part of a feasibility study. The dry-erase boards will be priced at $135 to start. In order to stay competitive, The Thinking Group will reduce the price to $105 (starting from Year 4). The dry-erase board project will require a $20,000 upfront investment in inventory and cash will increase by $10,000 initially. Subsequently, total inventory at the end of each year will be 12% of sales for that year, and cash will remain at the same level. The variable cost per dry-erase board is $40 per unit, and the total fixed costs are $45,000 annually. It costs $690,000 to buy the equipment required for production. The equipment falls in Class 10, the CCA rate for that class is 30% (assume the half-year rule applies). The equipment will have a salvage value of $88,888 in six years, when The Thinking Group will exit the project. The tax rate is 29% and the discount rate for this project is 8.5%. Whats the NPV of the project? Do you accept this project or not?
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