Your company has been doing well, reaching

$1.1

million in earnings, and is considering launching a new product. Designing the new product has already cost

$545,000.

The company estimates that it will sell

823,000

units per year for

$2.96

per unit and variable non-labor costs will be

$1.04

per unit. Production will end after year

3.

New equipment costing

$1.19

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

$297,000.

The new product will require the working capital to increase to a level of

$383,000

immediately, then to

$407,000

in year 1, in year 2 the level will be

$358,000,

and finally in year 3 the level will return to

$297,000.

Your tax rate is 21%. The discount rate for this project is9.6%.

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 (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be \$ 170,051. (Round to the nearest dollar.) Depreciation in year 2 will be $291,431. (Round to the nearest dollar.) Depreciation in year 3 will be $208,131. (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Design already happened and is (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be \$ 170,051. (Round to the nearest dollar.) Depreciation in year 2 will be $291,431. (Round to the nearest dollar.) Depreciation in year 3 will be $208,131. (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.)