Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The

image text in transcribedimage text in transcribed

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.36 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,460,000 on an aftertax basis. In four years, the land could be sold for $1,560,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $121,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,400, 4,300, 4,900, and 3,800 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $610 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. PUTZ feels that fixed costs for the project will be $405,000 per year, and variable costs are 20 percent of sales. The equipment necessary for production will cost $3.10 million and will be depreciated according toa three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $380,000. Net working capital of $121,000 will be required immediately. PUTZ has a 40 percent tax rate, and the required return on the project is 12 percent. Assume the company has other profitable projects. MACRS schedule. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Financial Management

Authors: Eugene F. Brigham, Phillip R. Daves

11th edition

978-1111530266

More Books

Students also viewed these Finance questions

Question

b. To what extent should the hands be used in communicating?

Answered: 1 week ago

Question

A program should use several Scanners per input stream. True False

Answered: 1 week ago

Question

(4) What is the difference between the two and why?

Answered: 1 week ago