Your company is considering the production of a new type of suitcase. You expect to sell 55,000 units in the first year. Unit sales are expected to shrink by 8% per year until year 5, after which production and sales will end, since the market will be saturated with competitors' products.

Each suitcase is expected to sell for $79 and will incur variable costs of $63.2 for labor and materials. In addition, you'll incur fixed costs of $434,500 every year.

You will need a new machine to produce the suitcases. If you buy the machine now (year 0), it will start producing suitcases next year (year 1). The machine costs $350,000 to purchase and install. After year 5, the new machine is expected to be sold at book value. The machine can be depreciated straight to zero over 10 years.

You have to spend $60,000 on components (plastic parts, metal hinges, etc.) just before production starts.

The appropriate discount rate (required return) for this project is 16% and your company has a marginal tax rate of 21%. The rest of the company is profitable and can offset any losses from this project. What is the NPV of the project?

What is the NPV if unit sales start out at 41,250 in year 1? What is the NPV if unit sales start out at 41,250 in year 1 and the price will only be $63 per suitcase?