Your company has been doing well, reaching

$1.02

million in earnings, and is considering launching a new product. Designing the new product has already cost

$479,000.

The company estimates that it will sell

791,000

units per year for

$2.99

per unit and variable non-labor costs will be

$1.13

per unit. Production will end after year

3.

New equipment costing

$1.02

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

$290,000.

The new product will require the working capital to increase to a level of

$390,000

immediately, then to

$410,000

in year 1, in year 2 the level will be

$343,000,

and finally in year 3 the level will return to

$290,000.

Your tax rate is

21%.

The discount rate for this project is

9.9%.

Do the capital budgeting analysis for this project and calculate its NPV.

Note:

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

Design already happened and is

(irrelevant).(Select from the drop-down menu.)

Part 2

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

$enter your response here.

(Round to the nearest dollar.)

Part 3

Depreciation in year 2 will be

$enter your response here.

(Round to the nearest dollar.)

Part 4

Depreciation in year 3 will be

$enter your response here.

(Round to the nearest dollar.)

Part 5

Complete the capital budgeting analysis for this project below:(Round to the nearest dollar.)