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 $512,000. The company estimates that it will sell 810,000 units per year for $2.95 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1 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

$306,000. The new product will require the working capital to increase to a level of $380,000

immediately, then to $403,000 in year 1, in year 2 the level will be

$353,000, and finally in year 3 the level will return to $306,000. Your tax rate is21%. The discount rate for this project is 10.3%.

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

Note:

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

Depreciation in years 2 and 3 will be $. (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year o Year 1 Year 2 Year 3 Sales $ $ $ $ - Cost of Goods Sold $ $ $ $ $ Gross Profit $ $ $ $ - Depreciation EBIT $ $ $ $ Tax $ $ $ $ $ $ $ $ $ $ Incremental Earnings + Depreciation - Incremental Working Capital Capital Investment Incremental Free Cash Flow $ $ $ $ $ $ $ $ $ $ The NPV of the project is $. (Round to the nearest dollar.)