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You work for Power In Motion Limited (PIM), a company specialized in motion sensor and related products. You are now reviewing information about a new
You work for Power In Motion Limited (PIM), a company specialized in motion sensor and related products. You are now reviewing information about a new product called U-Power, a kinetic energy generator that a person can wrap around his body to generate power and charge electronic gadgets. You think you should be able to sell $400 million worth of these devices per year for 3 years, starting at the end of this year. Your team has spent $5 million designing and test marketing the products in the past 2 years. Production of the devices will cost $200 million per year (includes both materials and salaries). If you were to launch the production, you will have to buy new equipment worth $80 million. This equipment will have a 4-year life and will be depreciated straight line to zero over that life. You plan to sell the equipment for $25 million at the end of the third year. Your company already had existing net working capital level at $20 million. Production of the new product will require you to increase your working capital from $20 million to $25 million immediately. Working capital will decrease back down to $20 million at the end of the third year. Your tax rate is 40%. What is the NPV of the project if the discount rate is 10%
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