Your company has been doing well, reaching $1.05 million in earnings, and is considering launching a new product. Designing the new product has already cost $468,000. The company estimates that it will sell 831,000 units per year for $2.93 per unit and variable non-labor costs will be $1.05 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 $298,000. The new product will require the working capital to increase to a level of $388,000 immediately, then to $395,000 in year 1, in year 2 the level will be $353,000, and finally in year 3 the level will return to $298,000. Your tax rate is 21%. The discount rate for this project is 9.6%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1.

Your company has been doing well, reaching $1.05 million in earnings, and is considering launching a new product. Designing the new product has already cost $468,000. The company estimates that it will sell 831,000 units per year for $2.93 per unit and variable non-labor costs will be $1.05 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 $298,000. The new product will require the working capital to increase to a level of $388,000 immediately, then to $395,000 in year 1 , in year 2 the level will be $353,000, and finally in year 3 the level will return to $298,000. Your tax rate is 21%. The discount rate for this project is 9.6%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1