project unit sales for a new household-use laser-guided cockroach search and des

Question

project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: 94,500 106,500 129,500 135,500 88,500 The new system will be priced to sell at $410 each. The cockroach eradicator project will require $1,700,000 in net working capital to start, and total net working capital are $1,200,000 per year. equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20 percent. In five years, this equipment will actually be worth about 20 percent of its cost. will rise to 15 percent of the change in sales. The variable cost per unit is $280, and total fixed costs The equipment necessary to begin production will cost a total of $16 million. This The relevant tax rate is 35 percent, and the required return is 16 percent. Based on these preliminary what in the NPV ofthe project? (Enter the answer in dollars, Do not round your intermediat calculations. Round the final answer to 2 decimal places.) NPV

Explanation / Answer

Soln : Pleaee refer the table , where we have evaluated the cash flows and also provide the NPV value as (all figures are in $ million)::

We can see here the NPV as $4.77 million

Year 0 1 2 3 4 5 Sales 0.00 94500 106500 129500 135500 88500 Revenue 0.00 38.75 43.67 53.10 55.56 36.29 Net working capital 0.00 1.7 6.62 11.13 4.16 1.70 fixed cost 0.00 1.20 1.20 1.20 1.20 1.20 Variable cost 0.00 26.46 29.82 36.26 37.94 24.78 Depreciation -16.00 -3.20 -3.20 -3.20 -3.20 -3.20 Profit after depreciation 0.00 6.18 2.83 1.31 9.06 5.40 Taxes 0.00 2.16 0.99 0.46 3.17 1.89 Net profit after taxes plus depreciation 7.22 5.04 4.05 9.09 6.71 rate +1 1.16 1.16 1.16 1.16 1.16 Present values 6.22 3.74 2.59 5.02 3.20 Total 20.77 NPV 4.77

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