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Your company is exploring the possibility of offering a new product. The equipment required to manufacture the new product will cost $900,000 and will be
Your company is exploring the possibility of offering a new product. The equipment required to manufacture the new product will cost $900,000 and will be depreciated on a straight-line basis over its six-year life to a salvage value of $90,000. The equipment will be sold at the end of the project for its salvage value. There will also be upfront tooling and set-up costs of $50,000, and a working capital injection of $35,000 which will be recovered at the end of the six-year project life. You estimate that the new product will cost $57.00 to make, and that it will sell for $85.00. Unit sales in year 1 are estimated to be 10,000, and in year 2 are estimated to be 15,000. Unit sales in years 3-6 are estimated to be 25,000. The tax rate for your company is 35%. What are the projected cash flows associated with this project, and what is the NPV using a discount rate of 20%
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