Your company has been doing well, reaching $1.03 million in earnings, and is considering launching a new product. Designing the new product has already cost $461,000. The company estimates that it will sell 844,000 units per year for$2.96 per unit and variable non-labor costs will be $1.09 per unit. Production will end after year 3. New equipment costing$1.04 million will be required. The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA. You think the equipment will be obsolete at the end of year 3 and plan to scrap it. Your current level of working capital is $295,000. The new product will require the working capital to increase to a level of $390,000 immediately, then to $390,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $295,000. Your tax rate is 21%. The discount rate for this project 9.8%. Do the capital budgeting analysis for this project and calculate its NPV.

Note:

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