Your company has been doing well, reaching $1 million in earnings, and is considering launching a new product. Designing the new product has already cost $493,000. The company estimates that it will sell 792,000 units per year for $3.03 per unit and variable non-labor costs will be $1.13 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $299,000. The new product will require the working capital to increase to a level of $390,000 immediately, then to $404,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $299,000. Your tax rate is 21%. The discount rate for this project is 10.1%. Do the capital budgeting analysis for this project and calculate its NPV.

Note: Assume that the equipment is put into use in year 1.

According to the 7-year MACRS schedule, depreciation in year 1 will be ?

According to the 7-year MACRS schedule, depreciation in year 2 will be ?

According to the 7-year MACRS schedule, depreciation in year 3 will be ?

What is the NPV of the project?