Your company has been doing well, reaching $1.08 million in earnings, and is considering launching a new product. Designing the new product has already cost $502,000. The company estimates that it will sell 841,000 units per year for $3.01 per unit and variable non-labor costs will be $1.13 per unit. Production will end after year 3. New equipment costing $1.18 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 $292,000. The new product will require the working capital to increase to a level of $376,000 immediately, then to $399,000 in year 1, in year 2 the level will be $360,000, and finally in year 3 the level will return to $292,000. Your tax rate is 21%. The discount rate for this project is 9.7%. 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 sunk (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be $ (Round to the nearest dollar.) Depreciation in year 2 will be $ (Round to the nearest dollar.) Depreciation in year 3 will be $ (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 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.)