Your company has come up with a new product with a 3-year life

(pretend youre introducing a trendy product, which will not survive long in the marketplace).

Your firm paid $80,000 for a Tulane intern to perform a financial analysis last month to determine the potential demand for the product.

It is believed that the new product will generate sales of $500,000 per year.

The fixed costs associated with this will be $90,000 per year, and variable costs will amount to 20 percent of sales.

The initial investment in equipment necessary for production of the product will cost $300,000 and will be depreciated in a straight-line manner for the three (3) years of the products life to a salvage value of 0.

There is no salvage value. To help entire buyers, you've offered generous credit terms so you have receivables.

Your recievables are as follows $10,000 for Year 1; $15,000 for Year 2; $0 for Year 3. Your firm has a tax rate of 21%.

Your firms required rate of return on projects with the same risk as this product is 10%.

Calculate the NPV of this project. Should you accept or reject it?

NOW WHAT IF TAX RATES GO TO 28%? WHAT IS THE NEW NPV?