Question
Your mother really dislikes the low quality of T-shirts that your company makes. She also dislikes the low-brow sayings and tasteless pictures that you print
Your mother really dislikes the low quality of T-shirts that your company makes. She also dislikes the low-brow sayings and tasteless pictures that you print on them - she wont let your younger sister wear them. Thus, your mom has been pestering you to expand and produce a higher quality line of T-shirts in addition to your current selection. Below are the details on this project. Cost of new equipment: $90,000 Installation cost of equipment: $40,000 Life of equipment: 5 years, Straight line depreciation Expected sales: $170,000 per year Expected reduction in sales of cheap T-shirts as your few sober customers will probably shift to the new line: $10,000 per year Raw material cost: $90,000 per year New worker salary: $20,000 per year Required Net working capital over the life of the project: $20,000 Expected Salvage value of equipment at the end of 5 year: $30,000 Tax rate: 35%. Assuming a WACC of 16%, what is this projects NPV?
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