Your company is evaluating a new product and you are required to provide a financial evaluation and recommendation Marketing has given the following estimates: Project Year 1 Unit Sales 3,000 Selling Price per Unit $ 120 $ 2 5,000 120 $ 3 6,000 120 $ 4 6,500 110 5 6,000 110 6 5,000 110 $ 7 4,000 110 $ 8 3,000 110 $ $ Operations has given the following estimates: VMC $60 per unit each year Fixed Mfg Costs $25,000 each year Working capital required for this project: $20,000 is required up front; subsequent years is estimated to be 15% of $ sales Cost of Machinery $800,000 Machine depreciated using 7-years MACRS table (provided on next tab) Anticipate salvage value: 20% of original cost of machine Prior to start-up and caused by the installation of the new machine, production will be disrupted causing the loss of 500 units selling for $50 with a VMC of $30 Info from the CFO: Marginal tax rate: Required rate of return: Assume O inflation 34% 15% She has asked you to calculate the following and asked for your recommendation, accept or reject the project NPV IRR Payback CAPEX Example Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 5 Year Year 7 Year 8 Unit Sales Unit Price Unit VMC MACRS % 1 14.29% 2 24.49% 3 17.49% 4 12.49% 5 8.93% 6 8.92% 7 8.93% 8 4.46% Revenues Variable Costs Fixed Costs Depreciation EBIT Taxes @ 34% Net Income + Depreciation ANWC + NWC Recovery A Capital Spending Salvage Value Total Cash Flow $ $ $ $ $ $ $ $ $ Cum Cash Flow $ $ $ $ $ $ $ $ S $ $ Payback NPV @ 15% $0 #NUM! IRR