Your company has been doing well, reaching $1.09 million in earnings, and is considering launching a new product. Designing the new product has already cost $544,000. The company estimates that it will sell 806,000 units per year for $3.04 per unit and variable non-labor costs will be $1.11 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 $291,000. The new product will require the working capital to increase to a level of $379,000 immediately, then to $404,000 in year 1, in year 2 the level will be $357,000, and finally in year 3 the level will return to $291,000. 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. 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 $168622. (Round to the nearest dollar.) Depreciation in year 2 will be $ 288982. (Round to the nearest dollar.) Depreciation in year 3 will be $ 206382. (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 S 0 $ $ $ - Cost of Goods Sold 0 Gross Profit 0 $ 0 - Depreciation 168622 288982 206382 EBIT $ 0 $ $ $ - Tax 0 Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment 0 $ $ $ 0 168622 288982 206382 88000 1180000 Incremental Free Cash Flow S 1092000 $ Example Get more help Clear all Check answer